<PAGE> 1
The following items were the
subject of a Form 12b-25 and
are included herein:
Item 8 KPMG LLP's Independent
Auditor's Report; Item 8
Coopers & Lybrand LLP's Report
of Independent Accountants
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K/A
Amendment Number 1
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d ) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 1998
OR
|| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________.
Commission file number: 0-26520
NEOPROBE CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 31-1080091
- ---------------------------------------------------------------- ---------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification
No.)
425 Metro Place North, Suite 300, Dublin, Ohio 43017-1367
- ---------------------------------------------------------------- ---------------------------------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (614) 793-7500 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
-------------------------------------------------------------------------------
(Title of Class)
Rights to Purchase Series A Junior Participating Preferred Stock
-------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of shares of Common Stock held by non-affiliates of
the Registrant on March 19, 1999 was $24,212,375.
The number of shares of Common Stock outstanding on March 19, 1999 was
22,965,017.
The following documents have been incorporated by reference into this Form 10-K:
Document Part of Form 10-K
-------- -----------------
Registrant's Proxy Statement for its 1999 Part III
Annual Meeting of Stockholders
This Amendment Number 1 to Annual Report on Form 10-K ("Form 10-K") for the
fiscal year ended December 31, 1998 is being filed by the Registrant in order to
file KPMG LLP's Independent Auditor's Report ("KPMG Report") and Cooper &
Lybrand LLP's Report of Independent Accountants ("Coopers & Lybrand Report"), to
revise the Registrant's disclosure under Part II, Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operations and to revise the
notes to the Registrant's consolidated financial statements. The KPMG Report and
the Coopers & Lybrand Report were omitted from the Form 10-K pursuant to Rule
12b-25(e)(i) because KPMG LLP had not completed its audit.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
DEVELOPMENT OF THE BUSINESS
Neoprobe Corporation, a Delaware corporation ("Neoprobe" or the "Company"), was
incorporated in the State of Ohio in 1983 and reincorporated in the State of
Delaware in 1988. The Company's executive offices are located at 425 Metro Place
North, Suite 300, Dublin, Ohio 43017-1367. The telephone number at that address
is (614) 793-7500.
Since inception, substantially all of the Company's efforts and resources have
been devoted to research and clinical development of innovative systems for the
intraoperative diagnosis and treatment of cancers. However, developments during
late 1997 and throughout 1998 have forced the Company to make significant
changes in its strategic direction and business plan. Before 1998, the Company's
primary research and development efforts were on the Company's proprietary
RIGS(R) (radioimmunoguided surgery) technology. However, research and
development efforts during 1997 and 1998 also included development as well as
market launch activities related to gamma radiation detection instrumentation
used in the application of intraoperative lymphatic mapping ("ILM") and
development activities related to an activated cellular therapy ("ACT")
methodology for the treatment of certain cancers and viral diseases. Beginning
in the fourth quarter of 1998, the Company's primary focus was changed to ILM
and related procedural product development and commercialization activities.
From 1983, when Neoprobe was organized, until 1998, Neoprobe was primarily
engaged in research and development of its RIGS technology, which consists of a
patented hand-held radiation detection probe, and proprietary cancer targeting
agents labeled with radioactive isotopes. In 1996, the Company completed a
series of clinical trials of its first generation targeting agent for the
detection of colorectal cancer, RIGScan(R) CR49. During 1996, the Company
submitted applications to European and U.S. regulatory agencies requesting
approvals to begin marketing RIGScan CR49 for the detection of metastatic
colorectal cancer. Late in the fourth quarter of 1997, the Company received
requests for further information from United States and European regulatory
agencies following review of its applications. Consequently, during the first
quarter of 1998, the Company implemented changes to its business plan to reduce
operating expenses and focus on three main business objectives: commercializing
its RIGScan CR49 diagnostic product for the surgical detection of metastatic
colorectal cancer, increasing the Company's market position in device sales for
intraoperative lymphatic mapping and other gamma guided surgery applications,
and developing activated cellular therapy products for cancer and viral
diseases. First quarter plan changes resulted in a 20% reduction in the
Company's domestic staff and the postponement of research projects for earlier
stage RIGS diagnostic products which were originally expected to be carried out
in 1998.
During the second quarter of 1998, the Company engaged the services of Lehman
Brothers to assist in securing development partners and in the strategic
assessment of the Company's business. The Company has not entered into any
definitive development agreements as a result of these efforts and terminated
the arrangement with Lehman Brothers during the fourth quarter of 1998. Also
during the second quarter of 1998, the Company determined that Neoprobe Europe
AB ("Neoprobe Europe"), the Company's biologics manufacturing and purification
facility located in Lund, Sweden, was no longer needed to implement the
Company's business plan, and put Neoprobe Europe up for sale.
During the third quarter of 1998, based on further assessments of its RIGScan
CR49 development plans with clinical and regulatory advisers and on assessments
of the Company's financial position by management and the Board of Directors,
the Company further modified its business plan. Third quarter modifications to
the business plan focused the Company's operating activities on its core gamma
guided surgery instrument business for use in intraoperative lymphatic mapping
("ILM") while management carries on efforts to identify business partners who
would assume financial responsibility for the development of RIGS and ACT. The
third quarter plan also involved steps to be taken to sell certain non-strategic
assets, and to limit activities at the Company's subsidiary, Neoprobe
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<PAGE> 3
(Israel) Ltd. ("Neoprobe Israel"), to the completion of certain construction
activities and the performance of only non-product specific plant validation.
During the fourth quarter of 1998, the Company made additional headcount
reductions and took action to begin winding down operations at Neoprobe Israel.
Since the beginning of 1998, the Company has decreased its worldwide headcount
by approximately 60% and has ended or is in the final stages of ending the
majority of its research and development activities that are not related to ILM.
Also, during the fourth quarter of 1998, the Board of Directors directed
management to initiate actions to shutdown the facility and validation
operations at Neoprobe Israel. These actions were taken to arrive at the minimum
support structure management believes is necessary to support the gamma guided
surgery business and to move the Company towards profitability.
Neoprobe's current strategy is to commercialize gamma-guided surgery products
based upon technologies that are patented or exclusively licensed by the Company
for diagnosis and treatment of patients with cancer. The Company has suspended
any future research and development activities related to its RIGS or ACT
products until it finds partners who will take on the financial burden of
development.
THE COMPANY'S TECHNOLOGY
Intraoperative Lymphatic Mapping and Other Gamma Guided Surgery Instrument
Applications
Surgeons use lymphatic mapping to help trace the lymphatic patterns in a cancer
patient to evaluate potential tumor drainage and cancer spread. The technique
does not detect cancer; it helps surgeons find the first lymph node(s) to which
tumor is likely to drain and spread. That node (sometimes referred to as the
"sentinel" node) may provide critical information about the stage of a patient's
disease. Intraoperative lymphatic mapping begins when a patient is injected at
the site of the main tumor with a commercially available radioactive tracing
agent; e.g., filtered sulfur colloid labeled with Technetium-99m, a radioactive
element. The agent is intended to follow the same lymphatic flow as the cancer
would if it had metastasized. The surgeon may then track the agent's path with
the probe, thus following the potential avenues of metastases and identifying
lymph nodes to be biopsied for evaluation and determination of cancer spread.
Lymphatic mapping gives surgeons a "road map" to find the sentinel nodes to
which tumor is likely to drain or spread. Numerous clinical studies involving
nearly two thousand patients, published in the most prestigious peer-review
medical journals, have shown ILM is 97% accurate in predicting the presence or
absence of disease spread in melanoma or breast cancers. As a result, over 80%
of patients who would have undergone lymphadenectomies can be spared this
radical surgical procedure.
Surgeons practicing ILM have found that the Company's gamma-detecting probes are
very well suited to the procedure. The Company's first-generation
gamma-detecting probe, the Neoprobe(R) 1000 device, was originally developed for
use in RIGS clinical trials and other RIGS product clinical development. The
patented Neoprobe 1000 instrument consisted of a hand-held gamma-ray-detection
probe and a software-driven control unit. The reusable probe is a stainless
steel tube with an angled tip for ease of maneuverability. The detection device
in the tip of the probe is a highly radiosensitive crystal that relays a signal
through a preamplifier to the control unit to produce both a digital readout and
an audible signal. The detector element fits in a housing approximately the size
of a pocket flashlight. During 1997, the Company launched an enhanced gamma
detector, the Neoprobe(R) 1500 portable radioisotope detector, in response to
the emergence of ILM, and in late 1998 the Company launched a new system the
neo2000tm. The neo2000 is intended to be the cornerstone of Neoprobe's future
ILM instrument products.
Lymphatic mapping has become the standard of care for treating patients with
melanoma at many institutions. The Company has supported this initiative through
training support, technical expertise and device placement. For cutaneous
malignant melanoma, lymphatic mapping has become the standard of care in major
cancer centers and community hospitals in the U.S. and was recently declared the
standard of care for melanoma treatment by the World Health Organization. For
breast cancer, the technique is moving toward standard of care status in major
cancer centers and is being confirmed in several high profile, national, and
international clinical trials. Several large multi-center clinical trials began
in 1998, including studies sponsored by the U.S. Department of Defense and the
National Cancer Institute. In addition to lymphatic mapping, surgeons are using
Neoprobe's device for other gamma
3
<PAGE> 4
guided surgery applications, such as locating enlarged parathyroid glands for
intraoperative localization of osteoid osteomas, small painful bone lesions, and
in surgical biopsy of suspected spread of cancer to the bone (osseous
metastases). Surgeons have also found the technique useful in staging patients
with vulvar, prostate, and penile cancers, and additional applications of the
technology are being investigated.
The Company continues to work with thought leaders in the surgical community to
set up and support training courses internationally for lymphatic mapping.
Courses were held for over 350 surgeons during 1998 at such institutions as M.D.
Anderson Cancer Center, the University of Washington, the Netherlands Cancer
Institute, the University of Louisville, and H. Lee Moffitt Cancer Center and
Research Institute. Additional training centers are expected to open during
1999.
The Company is currently selling the Neoprobe 1500 and neo2000 instruments for
lymphatic mapping and other gamma guided surgery applications and expanding its
line of instruments to provide a variety of gamma-detecting probes for
specialized uses. The growing use of the lymphatic mapping technique by surgeons
has helped generate revenue for the Company of approximately $5.9 million during
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Neoprobe's ILM business strategy will be designed around the following
objectives:
o Providing cost effective technology to reduce patient morbidity and allow
the ILM procedure to be done in an outpatient setting.
o Increasing the Company's market position in device sales for intraoperative
lymphatic mapping and other gamma guided surgery applications by expanding
and improving its ILM devices, and completing strategic marketing
partnerships to globalize its technology.
o Evaluating procedural ILM product opportunities, including disposable
products and the development of minimally invasive radiation detection
devices. In addition, Neoprobe will support the activities of thought
leaders in evaluating the use of ILM in the treatment of prostate and other
cancers.
The RIGS Technology
Since inception, Neoprobe has devoted significant efforts and resources to the
development of its proprietary RIGS technology. The RIGS system combines a
patented hand-held gamma radiation detection probe, proprietary radiolabeled
cancer targeting agents, and a patented surgical method to provide surgeons with
real-time information to locate tumor deposits not detectable by conventional
methods, and to assist in more thorough removal of the cancer. The Company's
targeting agents are monoclonal antibodies or peptides, labeled with a
radioactive isotope that emits low energy gamma rays. Before surgery, a cancer
patient is injected with one of the targeting agents which circulates throughout
the patient's body and binds specifically to cancer cell antigens or receptors.
Concentrations of the targeting agent are then located during surgery by
Neoprobe's gamma-detecting instrument, which emits an audible tone to direct the
surgeon to targeted tissue.
Since 1992, more than 700 patients have participated in several phases of
clinical trials for surgical detection of primary and metastatic colorectal
cancer using the Company's lead product, RIGScan(R) CR49. In 1996, Neoprobe
submitted applications to the European Agency for the Evaluation of Medicinal
Products ("EMEA") and the United States Food and Drug Administration ("FDA") for
marketing approval of RIGScan CR49 for the detection of metastatic colorectal
cancer. Following review of its applications, the Company received requests for
further information from the FDA and from the European Committee for Proprietary
Medicinal Products ("CPMP") on behalf of the EMEA. Both the FDA and EMEA
acknowledged that the Company's studies met the diagnostic endpoint of the Phase
III clinical study which was to provide incremental information to the surgeon
regarding the location of hidden tumor. However, both agencies wanted to know
how the finding of additional tumor provided clinical benefit that altered
patient management or outcome. The Company developed a clinical response plan
for both agencies during the first half of 1998. However, the formalized process
in Europe required Neoprobe, in November 1997, to withdraw its European
application from the EMEA.
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<PAGE> 5
During 1998, the Company discussed the FDA's request for additional information
with the FDA and with expert clinical and regulatory advisors. Based on these
discussions, the Company determined that the best plan for obtaining regulatory
approval of its RIGS technology would be to re-apply after conducting clinical
trials of a second generation antibody. Because of the cost and risk of clinical
trials, the Company has determined that it will not conduct clinical trials of
RIGScan CR49 or a second generation antibody unless it finds a partner who will
assume the financial burden of the trials and manufacturing validation. The
Company does not intend to fund any further RIGS-related research and
development by itself. The Company has not entered into any agreements with a
development partner for the RIGS technology and does not know if a partner will
be identified on a timely basis, on terms acceptable to the Company, or at all.
There can be no assurance that the FDA or the EMEA will approve the Company's
RIGS products for marketing, or that any such products will be successfully
introduced or achieve market acceptance. See "Risk Factors -- Government
Regulation."
Activated Cellular Therapy for Cancer and Viral Disease
As a result of its RIGScan CR49 research, Neoprobe developed a RIGS based
Activated Cellular Therapy ("ACT") for cancer, which boosts the patient's own
immune system by removing lymph nodes identified using the RIGS process during
surgery and then, in a cell processing facility, activating and expanding
"helper" T-cells found in the nodes. Within 10 to 14 days, the patient's own
immune cells, now activated and numbering more than 20 billion, are infused into
the patient in an attempt to trigger an effective immune response to the cancer.
An in-vitro research program has shown that soluble factors secreted by the
activated cells produce significant chemo-enhancement in a number of tumor cell
lines for a variety of chemotherapeutic agents. The in-vitro assessment
correlates with an observation of potential chemo-enhancement in an earlier
Phase I clinical study of unresectable colorectal patients performed at The Ohio
State University.
In addition, Neoprobe has preliminarily evaluated the application of a non-RIGS
based ACT therapy for the treatment of chronic viral diseases. ACT for viral
diseases uses peripheral lymph nodes, which are obtained in an out-patient
setting, as the initial starting culture material. After using Neoprobe's
activation and expansion procedures, the cells are infused in 10 to 14 days. A
Phase I study has been completed with HIV/AIDS patients at The Ohio State
University with encouraging results. The Company also recently completed a Phase
I trial in additional viral diseases, extending the use of activated cellular
therapy to patients co-infected with HIV/AIDS and chronic active hepatitis B or
C at the Miami VA Medical Center in Florida. Because of the cost and risk of
clinical trials, the Company has determined that it will not conduct clinical
trials of ACT unless it finds a partner who will assume the financial burden of
the trials and manufacturing validation. The Company does not intend to fund any
further ACT-related research and development by itself. The Company has not
entered into any agreements with a development partner for the ACT technology
and does not know if a partner will be identified on a timely basis, on terms
acceptable to the Company, or at all. There can be no assurance that any ACT
products will be successfully developed, tested or licensed, or that any such
products will gain market acceptance. See "Risk Factors - Government
Regulation."
CANCER MARKET OVERVIEW
Cancer is the second leading cause of death in the U.S. and Western Europe and
is responsible for over half a million deaths annually in the U.S. The National
Cancer Institute estimates the overall annual costs for cancer, the primary
focus of the Company's products, at $104 billion: $35 billion for direct medical
costs, $12 billion for morbidity, and $57 billion for mortality. NCI estimated
that breast cancer will annually affect approximately 500,000 women in North
America, Western Europe, and other major economic markets. Approximately 80% of
the patients diagnosed with breast cancer undergo a lymph node dissection to
determine if the disease has spread. While many breast cancer patients are
treated in large cancer centers or university hospitals, regional and/or
community hospitals treat the majority of breast cancer patients. Over 10,000
hospitals are located in the markets targeted for Neoprobe's breast cancer ILM
products. Melanoma is the fastest increasing form of cancer in the United States
and Europe. The medical importance of ILM staging has been accepted for
melanoma. However, more melanoma patients are typically treated at large cancer
centers or university hospitals focusing the market opportunity for Neoprobe's
melanoma ILM products. An aging population, coupled with longer survival rates,
should increase the size of the overall oncology market significantly in the
coming years.
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MARKETING AND DISTRIBUTION
The Company began development of its first portable gamma radiation detection
device, the Neoprobe 1000, in 1987. In 1996, Neoprobe began marketing a device
in the emerging ILM technology as a pre-marketing strategy for the anticipated
commercial launch of the first RIGS product. ILM has become a significant
stand-alone product. Significant marketing activity related to ILM products in
the U.S. did not begin until the fourth quarter of 1996 and in Europe until the
fourth quarter of 1998, following receipt in August, 1998 of the European CE
mark for the Neoprobe 1500.
In October 1997, the Company launched an improved version of its gamma radiation
detection device, the Neoprobe 1500, in response to the expanding adoption of
the ILM technique in melanoma, breast and other cancers. In October 1998,
Neoprobe introduced a feature-enhanced device, the neo2000. Neoprobe intends to
market both the 1500 and 2000 systems as entry-level and feature-enhanced ILM
systems respectively. In April 1998, the Company launched a new 14mm reusable
probe that has been optimized for breast cancer procedures. Neoprobe intends to
introduce additional probe products in the first quarter of 1999. There can be
no assurance that such products will achieve regulatory approval (See "Risk
Factors -- Government Regulation") or if approved that such products will
achieve market acceptance (See "Risk Factors -- Dependence on Principal Product
Line").
To market its ILM products in the United States and Europe, Neoprobe has
established a corporate sales force consisting of product specialists and
physician-training specialists. Neoprobe currently has 10 product specialists in
the United States and 4 product specialists in Europe. To supplement the
activities of its direct sales force, the Company has developed a relationship
with KOL Bio-Medical Products ("KOL"). KOL will coordinate the efforts of
approximately 60 sales representatives throughout the United States. In
addition, the Company and KOL will jointly present Neoprobe's ILM products at
medical conferences and conduct and sponsor surgeon training courses at
thought-leader institutions and its surgeon training facilities.
Physician training is critical to the use and adoption of ILM products by
surgeons and other medical professionals. Neoprobe has established relationships
with the leaders in the ILM surgeon community and has established and supported
training courses internationally for lymphatic mapping. Courses were held for
over 700 surgeons during 1997 and 1998 at such institutions as M.D. Anderson
Cancer Center, the University of Washington, the Netherlands Cancer Institute,
the University of Louisville, H. Lee Moffitt Cancer Center and Research
Institute, and University of California, San Francisco. Additional training
centers are expected to open during 1999 bringing the number of sites at which
Neoprobe participates to over 20.
In September 1996, the Company executed a License and Distributorship Agreement
with United States Surgical Corporation ("USSC"). Effective October 1997, the
Company and USSC agreed to terminate the agreement, as amended. In connection
with the termination, the Company agreed to pay USSC net commissions on orders
for devices received prior to the effective date of the termination and to
continue to warranty and service devices sold under the terms of the agreement.
The parties also agreed to discharge and release each other from all remaining
claims and financial obligations relating to the Agreement, including license
fees.
In April 1998, the Company executed a non-exclusive Sales and Marketing
Agreement with Ethicon Endo-Surgery, Inc. ("EES"), a Johnson & Johnson company,
to market and promote the Neoprobe 1500 Portable Radioisotope Detector and its
14mm and 19mm reusable probes in the United States. In October 1998, the
agreement with EES was amended to cover marketing of these products in Europe.
On January 29, 1999, the Company provided EES with notice of the Company's
intent to terminate the Agreement effective March 1, 1999.
Effective February 1, 1999, the Company executed a Sales and Marketing Agreement
with KOL Bio-Medical Instruments, Inc. ("KOL") to market the Company's current
and future gamma guided surgery products in the United States. In exchange for
marketing and selling the products and providing customer training, KOL will
receive commissions on net sales of applicable products and milestone payments
on the achievement of certain levels of product sales. The term of the agreement
is indefinite with provisions for both parties to terminate with a minimum of
six months notice under certain conditions or without cause. Under the terms of
the agreement, KOL is required to meet certain sales objectives and minimum
quotas related to sales of the Company's instrument
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products. However, if the agreement is terminated by the Company without cause
or because of a change of control of the Company, KOL is entitled to receive a
termination fee of 15% based on monthly net sales for a maximum of twenty-four
months and the Company is obligated to buy back, at a discount, demonstration
units purchased by KOL during the nine-month period prior preceding termination.
In Europe, the Company intends to supplement its sales force through development
of marketing partner or distribution partner relationships. In other markets
such as South America and the Pacific Rim, Neoprobe intends to enter into
relationships with medical product distributors. Neoprobe recently completed
agreements for ILM product distribution in Brazil, Japan, and China. Each of the
agreements requires the distributor to annually purchase a minimum quantity of
product. During 1999, Neoprobe intends to complete similar agreements for
product distribution in other countries such as Australia, New Zealand,
Argentina, Mexico and Canada. There can be no assurances that the Company will
be able to enter or maintain marketing agreements on terms favorable to the
Company. See "Risk Factors -- Limited Marketing Experience."
MANUFACTURING
Neoprobe Instruments. The Company relies on independent contract manufacturers,
some of which are single source suppliers, for the manufacture of the principal
components of its current line of gamma guided surgery products, see "Risk
Factors--Limited Manufacturing Capacity and Experience". In August 1996, the
Company entered into a Manufacturing and Supply Agreement with RELA, Inc. of
Boulder Colorado ("RELA"), a developer and manufacturer of medical devices.
Under the agreement, RELA manufactured Neoprobe 1000 instruments for the
Company. During the fourth quarter of 1997, the Company introduced the Neoprobe
1500 system. The Company continues to use RELA for the production of the
Neoprobe 1500 instrument and the 19mm hand-held gamma detector probe.
During 1998, the Company began manufacturing the 14mm probe and the neo2000
control unit. The neo2000 and the 14mm probe involve the manufacture of
components by a variety of subcontractors, including but not limited to
Electronic Assembly Corporation, a subsidiary of Plexus Corporation ("EAC"); eV
Products, a division of II-VI Corporation ("eV"); and MedTech Corporation. eV
produces the crystal used in the detector probes, MedTech produces certain
molded parts and subassemblies used in the probe and the neo2000 control unit,
and EAC performs assembly of the neo2000 control unit and final assembly of the
14mm probe. Currently, the Company has a Manufacturing and Supply Agreement with
eV for the production of crystals; however, work being performed by EAC and
MedTech is being performed under terms of letters of intent, pending completion
of final manufacturing, and supply agreements. There can be no assurance that
the Company will be able to complete or maintain agreements with its
subcontractors on a timely basis, on terms acceptable to the Company, or at all.
Any significant supply interruption or yield problems experienced by the Company
would have a material adverse effect on the Company's ability to manufacture its
products and, therefore, a material adverse effect on its business, financial
condition, and results of operations until a new source of supply is qualified.
See "Risk Factors -- Limited Manufacturing Capacity and Experience."
During 1997, the Company entered into a supply agreement with eV for the supply
of certain crystals and associated electronics to be used in the manufacture of
the Company's proprietary line of hand-held gamma detection probes. The original
term of the agreement expires on December 31, 2002 but may be automatically
extended for an additional three years. The agreement calls for the Company to
purchase minimum quantities of crystals and associated electronics based on
annually forecasted production needs. eV supplies 100% of the crystals used by
the Company. While eV is not the only potential supplier of such crystals, any
prolonged interruption from this source could restrict the availability of the
Company's probe products, which would affect operating results adversely.
PATENTS AND PROPRIETARY RIGHTS
The Company regards the establishment of a strong intellectual property position
in its technology as an integral part of the development process. Each of the
Company's technologies is protected by patents and intellectual property
positions, in the United States as well as foreign countries. Specifically,
Neoprobe's ILM technology is protected by twelve (12) instrument patents that
have been issued in the United States as well as major foreign
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<PAGE> 8
markets. In addition to the issued patents, twenty (20) patent applications have
been filed in the United States and certain major foreign markets. The patent
applications cover the Company's newly introduced neo2000 systems, probes, and
products that the Company plans to introduce in the coming months and years.
The Company continues to attempt to maintain proprietary protection for the
products related to RIGS and ACT, which although not currently integral to the
Company's business plans, may be important to a potential development partner.
Certain aspects of Neoprobe's RIGS technology are claimed in the United States
in U.S. Patent No. 4,782,840, which expires in 2005, unless extended. The
Company believes that some of its RIGS technology will not be patentable in
certain foreign countries.
The patent position of biotechnology and medical device firms, including the
Company, generally is highly uncertain and may involve complex legal and factual
questions. Potential competitors may have filed applications for, or may have
been issued patents, or may obtain additional patents and proprietary rights
relating to products or processes in the same area of technology as that used by
the Company. The scope and validity of these patents and applications, the
extent to which Neoprobe may be required to obtain licenses thereunder or under
other proprietary rights, and the cost and availability of licenses are
uncertain. There can be no assurance that the Company's patent applications will
result in additional patents being issued or that any of the Company's patents
will afford protection against competitors with similar technology; nor can
there be any assurance that any of the Company's patents will not be designed
around by others or that others will not obtain patents that Neoprobe would need
to license or design around. See "Risk Factors -- Patents, Proprietary
Technology and Trade Secrets."
The Company also relies upon unpatented trade secrets. No assurance can be given
that others will not independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to the Company's trade
secrets, or disclose such technology, or that the Company can meaningfully
protect its rights to its unpatented trade secrets. The Company requires its
employees, consultants, and advisers to execute a confidentiality agreement upon
the commencement of an employment or consulting relationship with Neoprobe. The
agreement provides that all confidential information developed or made known to
the individual during the course of the relationship will be kept confidential
and not disclosed to third parties except in specified circumstances. In the
case of employees, the agreements provide that all inventions conceived by the
individual will be the exclusive property of Neoprobe. There can be no
assurance, however, that these agreements will provide meaningful protection for
Neoprobe's trade secrets in the event of an unauthorized use or disclosure of
such information.
GOVERNMENT REGULATION
The production and marketing of Neoprobe's products and its research and
development activities are subject to detailed and substantive regulation by
governmental authorities in the United States and other countries. In the United
States, drugs, biologic products, and medical devices are regulated by the FDA.
Federal and state statutes and regulations, govern, among other things, clinical
testing, manufacture, labeling, packaging, marketing, distribution, and record
keeping in order to ensure that the Company's products are safe and effective
for their intended use. Noncompliance with applicable requirements can result
in, among other things fines, injunctions, suspensions or loss of regulatory
approvals, recall or seizure of the Company's products, and criminal
prosecution. The FDA has the authority to revoke previously granted licenses.
See "Risk Factors -- Government Regulation."
Instrument Products. The FDA classifies medical devices into one of three
classes -- class I, II, or III. Class I devices are subject to general controls,
such as labeling, premarket notification (the "510(k)" process), and adherence
to FDA-mandated quality system requirements ("QSR"). Class II devices are
subject to general and special controls, such as performance standards,
postmarket surveillance, patient registries, and FDA guidelines. Class III
devices are generally life-sustaining, life-supporting, or implantable devices
and must receive pre-market approval by the FDA.
If a seller of medical devices can establish that a new device is "substantially
equivalent" to a legally marketed Class I or Class II medical device or to a
Class III device for which the FDA has not required pre-market approval, the
seller may market the device without further approvals being granted by the FDA.
The FDA may, however,
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determine that the new device is not substantially equivalent and require the
seller to submit further information, such as additional clinical test data,
before it is able to make a determination regarding substantial equivalence,
which can substantially delay the market introduction of the product. For a
device that is cleared through the 510(k) process, modifications or enhancements
that could significantly affect the safety or effectiveness of the device, or
that constitute a major change to the intended use of the device, will require a
new 510(k) submission.
A premarket approval application ("PMA") must be filed if a proposed device is
not substantially equivalent to a legally marketed reserved Class I or Class II
device, or if it is a Class III device for which the FDA has called for PMAs.
The PMA process is much more expensive, uncertain and lengthy than the 510(k)
process. A PMA application must be supported by valid scientific evidence, which
typically includes extensive testing and manufacturing information, including
preclinical and clinical trial data to demonstrate the safety and effectiveness
of the device.
The Neoprobe 1000 instrument received 510(k) clearance in December 1986, and
modified versions received 510(k) clearance in June 1992 and February 1995. The
Neoprobe 1500 systems received 510(k) clearance in June 1997 . In February 1998,
the FDA reclassified "nuclear uptake detectors" as being exempt from the 510(k)
(premarket notification) process. The Company must continue to manufacture the
devices under QSR and maintain appropriate technical files; however, Neoprobe
will not need to submit 510(k) applications for modifications to the Neoprobe
device. The Company believes the neo2000 is exempt from the 510(k) process
because it is substantially equivalent to the Neoprobe 1500.
The FDA ensures QSR compliance through periodic facility inspections.
Accordingly, manufacturers must commit ongoing substantial resources to
maintaining a high level of compliance with QSR. In addition, Neoprobe's
promotional and educational activities regarding its diagnostic instrument
products must comply with FDA policies and regulations regarding acceptable
device product promotion practices.
RIGS and ACT products. The Company's biologic products, if developed, would
require a regulatory license to market by the FDA and by comparable agencies in
foreign countries. The process of obtaining regulatory licenses and approvals is
costly and time consuming, and the Company has encountered significant
impediments and delays related to its previous proposed biologic products. See
"Risk Factors -- Government Regulation."
The steps required before a biologic agent may be marketed in the United States
include (i) preclinical laboratory and animal testing; (ii) submission to the
FDA of an Investigational New Drug ("IND") application, which must become
effective before human clinical trials may commence; (iii) adequate and well
controlled human clinical trials to establish the safety and efficacy of the
biologic for its intended use; (iv) submission of a Biologic License Application
("BLA") to the FDA; and (v) FDA approval of these applications.
In addition to reviewing information submitted in the BLA, each manufacturing
facility must undergo a pre-approval inspection by the FDA to assess its
suitability and compliance with GMP and periodic inspections thereafter. Once
approved, any significant changes in the manufacturing process, equipment,
facilities, or product specifications must be pre-approved by the FDA and may
require additional clinical data to validate the changes prior to allowing their
implementation.
The FDA may deny a BLA if applicable regulatory criteria are not satisfied,
require additional testing or information, or require postmarket testing and
surveillance to monitor the safety or efficacy of the Company's products.
Notwithstanding the submission of such data, the FDA may ultimately decide that
the application does not satisfy its regulatory criteria for approval. Finally,
product approvals may be withdrawn if compliance with regulatory standards is
not maintained, or if a problem occurs following initial marketing.
The process of completing clinical testing usually takes a number of years and
requires the expenditure of substantial resources, and there can be no assurance
that any approval will be granted on a timely basis, if at all. Additionally,
the length of time it takes for the FDA to evaluate an application for marketing
approval varies considerably, as does the amount of preclinical and clinical
data required to demonstrate the safety and efficacy of a specific product. The
FDA may require additional clinical studies which may take several years to
perform. The
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length of the review period may vary widely depending upon the nature and
indications of the proposed product and whether the FDA has any further
questions or requests any additional data. Also, the FDA will require
postmarketing reporting and surveillance programs to monitor the side effects of
the products. There can be no assurance that any of the Company's potential
products will be approved by the FDA or approved on a timely or accelerated
basis, or that any approvals received will not subsequently be revoked or
modified.
The Company submitted a dossier to the European regulatory agencies in May 1996,
and a BLA to the FDA in December 1996, for its RIGScan CR49 product for the
detection of metastatic colorectal cancer. In November 1997, the Company
voluntarily withdrew its European Marketing Authorization Application after a
decision by the Committee for Proprietary Medicinal Products (CPMP) determined
that there was insufficient data to support the clinical utility of the product;
additional information has been requested. In December 1997, the FDA issued an
action letter to the Company stating that the BLA is "not approvable at this
time" and requested a formal response to the deficiencies listed in the letter.
This additional information must be submitted in the form of a BLA Amendment.
During 1998, the Company discussed the FDA's request for additional information
with the FDA and with expert clinical and regulatory advisers. Based on these
discussions, the Company determined that the best plan for obtaining regulatory
approval of its RIGS technology would be to re-apply after conducting clinical
trials of a second generation antibody. Because of the cost and risk of clinical
trials, the Company has determined that it will not conduct clinical trials of
RIGScan CR49 or a second generation antibody unless it finds a partner who will
assume the financial burden of the trials and manufacturing validation. The
Company does not intend to fund any further RIGS-related research and
development by itself. The Company has not entered into any agreements with a
development partner for the RIGS technology and does not know if a partner will
be identified on a timely basis, on terms acceptable to the Company, or at all.
There can be no assurance that the Company's RIGS products will be approved for
marketing by the FDA or the EMEA, or that any such products will be successfully
introduced or achieve market acceptance. See "Risk Factors -- Government
Regulation."
Before marketing its products in Western Europe, the Company will be required to
receive the approval of the European Council or European Commission and the
appropriate governmental agencies in each of the respective countries. For
marketing outside the United States, the Company is also subject to foreign
regulatory requirements governing human clinical trials, pharmaceutical sales,
and marketing approval of its products. Whether or not FDA approval has been
obtained, approval of a product by comparable regulatory authorities of foreign
countries must be obtained prior to commencement of manufacturing or marketing
of the product in those countries. The requirements governing the conduct of
clinical trials, product licensing, pricing, and reimbursement vary widely from
country to country; however, foreign procedures are similar to those required by
the FDA. The Company intends, to the extent possible, to rely on foreign
distributors of its products to manage and obtain regulatory approval for those
products.
In addition to regulations enforced by the FDA, the manufacture, distribution,
and use of radioactive targeting agents, if developed, are also subject to
regulation by the Nuclear Regulatory Commission, the Department of
Transportation and other federal, state, and local government authorities.
Neoprobe or its manufacturer of the radiolabeled antibodies must obtain a
specific license from the Nuclear Regulatory Commission to manufacture and
distribute radiolabeled antibodies, as well as comply with all applicable
regulations. Neoprobe must also comply with Department of Transportation
regulations on the labeling and packaging requirements for shipment of
radiolabeled antibodies to licensed clinics, and must comply with federal,
state, and local governmental laws regarding the disposal of radioactive waste.
There can be no assurance that the Company will be able to obtain all necessary
licenses and permits and be able to comply with all applicable laws. The failure
to obtain such licenses and permits or to comply with applicable laws would have
a materially adverse effect on the Company's business, financial condition, and
results of operations.
COMPETITION
Neoprobe faces competition from medical device companies, as well as from
universities and other non-profit research organizations in the field of cancer
diagnostics and treatment. Many emerging medical device companies have corporate
partnership arrangements with large, established companies to support the
research, development, and commercialization of products that may be competitive
with those of the Company. In addition, a number of
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large established companies are developing proprietary technologies or have
enhanced their capabilities by entering into arrangements with or acquiring
companies with proprietary antibody technology, or other technologies applicable
to the detection or treatment of cancer. Many of the Company's existing or
potential competitors have substantially greater financial, research and
development, regulatory, marketing, and production resources than those of the
Company. Other companies may develop and introduce products and processes
competitive with or superior to those of the Company. Further, the development
by others of new cancer diagnostic, or treatment methods or the development of a
cure or vaccine for cancer could render the Company's technology and products
under development noncompetitive or obsolete. See "Risk Factors -- Competition"
and "-- Risk of Technological Obsolescence."
For the Company's products, an important factor in competition may be the timing
of market introduction of its products or those of its competitors' products.
Accordingly, the relative speed with which Neoprobe can develop products,
complete the approval processes and supply commercial quantities of the products
to the market will be an important competitive factor. Neoprobe expects that
competition, among products approved for sale, will be based, among other
things, on product efficacy, safety, reliability, availability, price, and
patent position.
With the emergence of ILM, a number of companies have begun to market gamma
radiation detection instruments. Most of the competitive products have been
designed from a nuclear medicine perspective rather than developing products for
the surgeon. The principal competitive product in both the United States and
Europe has been the Navigator system which is marketed by US Surgical
Corporation, and a device manufactured and sold by Carewise Medical Products.
The Company also anticipates that Ethicon Endo-Surgery, a former marketing
partner, is preparing to enter the gamma guided surgery marketplace with its own
hand-held gamma detector probe and system. The Company believes its intellectual
property portfolio will be a barrier to competitive products; however, there can
be no assurance that competitive products will not be developed and be
successful in eroding the Company's market share for gamma guided surgery
products. See -- "Risk Factors Competition."
EMPLOYEES
As of March 19, 1999, Neoprobe, including Neoprobe (Israel), had 43 full-time
employees. Neoprobe considers its relations with its employees to be
satisfactory.
RISK FACTORS
The discussion in this Report contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the prospects discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those listed below.
Limited Revenues; Continuing Net Losses; Accumulated Deficit
The Company's limited history of operations, the nature of its business, and its
limited marketing and manufacturing experience make the prediction of future
operating results difficult and highly unreliable. The Company's future
prospects, therefore, must be evaluated in light of the substantial risks,
expenses, delays and difficulties normally encountered by companies in the
medical device industry, which is characterized by an increasing number of
participants, intense competition and a high rate of failure. The Company began
active marketing of its ILM products in 1997 and has limited experience in
manufacturing, marketing and selling its ILM products. Since its inception in
1983, the Company expended the majority of its efforts and resources in the
research and development of its RIGS technology. During 1998, based on
disappointing regulatory feedback from the FDA and European regulatory
authorities, the Company revised its business plan to severely curtail research
and development of the RIGS technology and to focus on gamma guided surgery
products such as those used in ILM. The Company has experienced significant
operating losses in each year since inception, and had an accumulated deficit of
approximately $115 million as of December 31, 1998. For the years ended December
31, 1996, 1997 and 1998, the Company's net losses were $21 million, $23.2
million and $28 million, respectively. The Company expects operating losses to
continue into 1999 as the Company expends substantial resources to continue
development of the Company's products, and build its marketing, sales,
manufacturing and finance organizations. There can be no
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assurance that the Company will ever achieve a profitable level of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Future Capital Needs; Uncertainty of Capital Funding
To date, the Company's capital requirements have been significant. The Company
has depended on the proceeds of sales of its securities and other financing
vehicles to continue research and development and to fund its working capital
requirements. The Company's future capital requirements depend on numerous
factors, including the extent to which the Company's products achieve market
acceptance and generate revenue, the resources the Company devotes to
developing, manufacturing and marketing its products, the progress of future
development programs, and the time required to obtain additional regulatory
clearances or approvals. The Company expects to continue to devote substantial
capital resources to market and sell its products, to fund research and
development of additional gamma guided surgery products, and to secure
manufacturing capacity. The timing and amount of such capital requirements
cannot be accurately predicted. Consequently, the Company may be required to
raise additional funds through public or private financing, collaborative
relationships, or other arrangements. However, no assurance can be given that
the necessary additional financing will be available to the Company on
acceptable terms, if at all, or that would not result in further dilution to the
holders of the Company's equity securities. The Company's ability to raise
additional financing may be dependent on many factors beyond the Company's
control, including the state of capital markets and the development or prospects
for development of competitive technology by others. See "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Dependence upon Gamma Guided Surgery Product Line; Uncertainty of Market
Acceptance
The Company's products, although being investigated for potential use in a
number of areas, are currently only widely used in the treatment and diagnosis
of two primary types of cancer: melanoma and breast cancer. The Company's
success is dependent on acceptance of ILM, and of its devices for use in ILM, by
the medical community as a reliable, safe and cost effective alternative to
current treatments and procedures. Although the Company believes that ILM has
significant advantages over other currently competing procedures, broad-based
clinical adoption of ILM will not occur until physicians outside the major
cancer centers and teaching hospitals determine that the ILM approach is an
attractive alternative to current treatments for use in melanoma and breast
cancer and expand its use to other types of cancer. There can be no assurance
that ILM will achieve significant market acceptance. There can be no assurance
that the Company's marketing efforts will result in significant demand for its
products, or that the current demand for the Company's products will be
maintained or continue to grow.
"Going Concern" Auditor's Opinion
Neoprobe has suffered recurring losses from operations and may need substantial
amounts of additional capital. Neoprobe's auditors, KPMG LLP, stated in their
report on Neoprobe's 1998 financial statements that these factors raise
substantial doubt, in their minds, about Neoprobe's ability to continue as a
going concern. The Company has obtained a waiver from the holders of the Series
B Preferred Stock of the redemption requirements associated with the issuance of
this going concern opinion related to Neoprobe's 1998 financial statements.
However, this opinion may make it much harder for Neoprobe to raise capital or
to market its products. It may also depress the price of common stock. See "Low
Stock Price." Furthermore, if Neoprobe's auditors materially qualify their
opinion on Neoprobe's financial statements again, Neoprobe would be required to
redeem the Selling Shareholders securities for $3.6 million dollars, which would
deplete its cash. If this happened, Neoprobe might not be able to continue
operations.
Competition
The medical device industry is intensely competitive. The Company's competitors
have significantly greater financial, technical, manufacturing, and distribution
resources as well as greater experience in the medical device industry than the
Company. The particular medical conditions that can be treated using the
Company's ILM products can also be treated and diagnosed by other medical
devices, procedures, or pharmaceuticals. Many of these alternatives are widely
accepted in the medical community and have a long history of use. The Company
also believes that its relationships with physicians and customer support are
important competitive factors. There can be no assurance that physicians will
use the Company's products or replace or supplement established treatments with
the Company's products, or that the Company's products will be competitive with
other technologies. There can be no assurance that the Company can achieve or
maintain a competitive position. In such event, the Company's business,
operating results, and financial condition could be materially adversely
affected. See "Item 1. Business -- Competition."
Limited Marketing Experience
The Company has limited experience in sales, marketing, or distribution of any
of its products. The Company currently employs a small sales and marketing
organization in the United States and Europe. The Company also currently markets
its products in the United States with the assistance of a marketing partner.
There can be no
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assurance that the Company will be able to compete effectively in attracting,
motivating, and retaining qualified sales personnel.
The Company believes that in order to successfully penetrate the gamma guided
surgery market that it is necessary to supplement the efforts of its internal
marketing organization with those of a marketing partner with experience in the
medical device marketplace and who has a greater number of representatives to
reach potential customers. In certain international markets, the Company sells
its products through distributors. The Company has already terminated marketing
arrangements with two other companies. There can be no assurance that the
Company will be able to identify suitable distribution agreements on acceptable
terms, if at all, or that such distribution agreements will result in
significant sales. There can be no assurance that the Company will be able to
maintain agreements with distributors, or that such distributors will devote
adequate resources to selling the Company's products. Since the Company has
entered into distribution agreements for the sale of its product in certain
countries, it will be dependent on the efforts of these third parties, and there
can be no assurance that such efforts will be successful. Failure to maintain or
grow an effective direct sales and marketing organization or to maintain
effective distributors could have a material adverse effect on the Company's
business, financial condition, and results of operations. There can be no
assurance that the Company will be able to, or its marketing partners will be
able to, market the Company's products successfully in the future. In such
event, the Company's business, operating results, and financial condition could
be materially adversely affected.
Risks of International Operations
The Company markets its products internationally. Changes in overseas economic
conditions, currency exchange rates, foreign tax laws or tariffs or their trade
regulations could have a material adverse effect on the Company's business,
financial condition and results of operations. The international nature of the
Company's business is also expected to subject it and its distributors to laws
and regulations of the foreign jurisdictions in which they operate or the
Company's products are sold. The regulation of medical devices in a number of
such jurisdictions, particularly in the European Union, continues to develop and
there can be no assurance that new laws or regulations will not have an adverse
effect on the Company's business, financial condition and results of operations.
Limited Manufacturing Capacity and Experience
The Company relies on independent contract manufacturers, some of which are
single source suppliers, for the manufacture of the principal components of its
current line of gamma guided surgery products. Shortages of raw materials,
production capacity constraints or delays on the part of the Company's contract
manufacturers could negatively affect the Company's ability to ship products and
obtain revenue. The Company uses or relies on certain components and services
used in its devices that are provided by sole source suppliers. Although the
Company has identified primary and alternative vendors, the qualification of
additional or replacement vendors for certain components or services is a
lengthy process. Any significant supply interruption or yield problems
experienced by the Company would have a material adverse effect on the Company's
ability to manufacture its products and, therefore, a material adverse effect on
its business, financial condition, and results of operations until a new source
of supply is qualified. Some of the components of the Company's products are
molded parts that require custom tooling that is manufactured and maintained by
third party vendors. Should such custom tooling be damaged, it could result in a
supply interruption that could have a material adverse effect on the Company's
ability to manufacture its products until a new tool is manufactured. Also, the
Company's new product development efforts and the timeliness of new product
launches can be significantly impacted by the tooling vendor's ability to meet
completion and quality commitments on the manufacture of custom tooling.
Companies often encounter difficulties in scaling up production, including
problems involving production yield, quality control and assurance, and
shortages of qualified personnel. As the Company increases production, it may,
from time to time, experience lower than anticipated yields or production
constraints, resulting in delayed product shipments which could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
The Company expects to manufacture its products based on forecasted product
orders. Lead times for materials and components ordered by the Company vary
significantly, and depend on factors such as the business practices of the
specific supplier, contract terms, and general demand for a component at a given
time. Certain components used in
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the Company's products have long lead times. As a result, there is a risk of
excess or inadequate inventory if orders do not match forecasts.
In addition, medical device manufacturing facilities are subject to GMP
regulations, international quality standards, and other regulatory requirements.
The failure of the Company's contractors to implement and maintain their
facilities in accordance with GMP regulations, international quality standards,
or other regulatory requirements could entail a delay or termination of
production, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Patents, Proprietary Technology and Trade Secrets
The Company's success depends, in part, on its ability to secure and maintain
patent protection, to preserve its trade secrets, and on its ability to operate
without infringing on the patents of third parties. The Company seeks to protect
its proprietary positions by filing United States and foreign patent
applications related to its technology, inventions and improvements that are
important to the development of its business. There can be no assurance,
however, that the patents for which the Company has applied will be issued to
the Company. There can be no assurance that any of the Company's patents or
patent applications will not be challenged, invalidated, or circumvented in the
future. In addition, there can be no assurance that competitors, many of which
have substantially more resources than the Company and have made substantial
investments in competing technologies, will not seek to apply for and obtain
patents that will prevent, limit, or interfere with the Company's ability to
make, use, or sell its products either in the United States or internationally.
Patent applications in the United States are maintained in secrecy until patents
issue, and patent applications in foreign countries are maintained in secrecy
for a period after filing. Publications of discoveries in the scientific or
patent literature tend to lag behind actual discoveries and the filing of
related patent applications. Patents issued and patent applications filed
relating to medical devices are numerous, and there can be no assurance that
current and potential competitors and other third parties have not filed or will
not file in the future applications for, or have not received or in the future
will not receive, patents or obtain additional proprietary rights relating to
products or processes used or proposed to be used by the Company. The Company
also relies upon trade secrets, technical know-how, and continuing technological
innovation to develop and maintain its competitive position.
The Company typically requires its employees, consultants, and advisors to
execute confidentiality and assignment of invention agreements in connection
with their employment, consulting, or advisory relationships with the Company.
There can be no assurance, however, that these agreements will not be breached
or that the Company will have adequate remedies for any breach. Further, there
also can be no assurance that others will not gain access to the Company's trade
secret information or independently develop or acquire the same or equivalent
trade secret information. Certain of the research activities relating to the
development of antibody technology that may be components of the Company's
proposed RIGS system technology products were conducted by agencies of the
United States government. When the United States government participates in
research activities, it retains certain rights that include the right to use the
technologies for governmental purposes under a royalty-free license, as well as
rights to use and disclose technical data and computer software that could
preclude the Company from asserting trade secret rights in that data and
software.
The Company has not been notified by any third party that the Company's products
and procedures infringe any valid, enforceable claim of any patent owned by
others. Any such claim, however, whether with or without merit, could be time
consuming and expensive to respond to and could divert the Company's technical
and management personnel. The Company may become involved in litigation to
defend against claims of infringement made by others, to enforce patents issued
to the Company, or to protect trade secrets of the Company. If any relevant
claims of third-party patents are upheld as valid and enforceable in any
litigation or administrative proceeding against the Company, it could be
prevented from practicing the subject matter claimed in such patents, or would
be required to obtain licenses from such patent owners, or to redesign its
products and processes to avoid infringement. There can be no assurance that the
Company will be able to obtain acceptable licenses or rights, if at all, to
other patents which the Company deems necessary for its operations. Accordingly,
an adverse determination in a judicial or administrative proceeding or failure
to obtain necessary licenses could prevent the Company from manufacturing
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and selling its products, which would have a material adverse effect on the
Company's business, financial condition, and results of operations. The Company
intends to vigorously protect and defend its intellectual property. Costly and
time consuming litigation brought by the Company may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company, or to determine the enforceability, scope, and validity of the
proprietary rights of others. See "Item 1. Business-- Patents and Proprietary
Rights" and "-- Competition."
Government Regulation
The Company's products in the United States are regulated as medical devices by
the FDA. The process of obtaining United States regulatory approvals and
clearances may be lengthy, expensive, and uncertain. Commercial distribution of
the company's products in foreign countries is also subject to varying
government regulations which may delay or restrict marketing of the Company's
products in those countries. In addition, such regulatory authorities may impose
limitations on the use of the Company's products. FDA enforcement policy
strictly prohibits the marketing of FDA cleared or approved medical devices for
unapproved uses. Within the European Union, the Company's products are required
to display the CE mark in order to be sold. The Company has obtained
certification to display the CE mark on its current line of portable radiation
detection instruments. However, there can be no assurance that the Company will
be able to maintain certification for its current products or that the Company
will be able to obtain certification for any new products in a timely manner, or
at all.
The manufacturing operations of the Company's contract manufacturers are subject
to compliance with Good Manufacturing Practices ("GMP") regulations of the FDA
and similar regulations of the European Union. These regulations include
controls over design, testing, production, labeling, documentation, and storage
of devices. Enforcement of GMP regulations has increased significantly in the
last several years, and the FDA has publicly stated that compliance will be more
strictly scrutinized in the future. The Company's facilities and manufacturing
processes, as well as those of current and future third party suppliers, will be
subject to periodic inspection by the FDA, the Company's European Union notified
body, and other agencies. Failure to comply with these and other regulatory
requirements could result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to grant premarket clearance
or premarket approval for devices, withdrawal of clearances or approvals, and
criminal prosecution, which could have an adverse effect on the Company and its
operations.
The Company does not currently market any RIGS products or radioactive targeting
agent to be used in ILM applications. However, if a partner is identified to
fund and assist in the development of RIGS products, or if the Company were to
undertake development of a radioactive targeting agent for use in ILM, these
products would also be subject to detailed and substantive regulation by the FDA
and by comparable agencies in foreign countries. Various federal, state, and
foreign statutes also govern or influence the manufacture, safety, labeling,
storage, record keeping, and marketing of such products. The process of
obtaining regulatory licenses and approvals is costly, time consuming, and prone
to unexpected delay. The Company has encountered and may continue to encounter
delays in the completion of testing or in the application process for RIGS and
ACT products. Future delays could result from, among other things, a longer than
expected regulatory review process, slower than expected patient enrollment
rates, difficulties in analyzing data from clinical trials or in validating
manufacturing processes and changes in regulatory requirements. Moreover,
foreign and domestic approvals, if granted, may include significant limitations
on uses of the products. Further, even if such regulatory approval is obtained,
use of the Company's products could reveal side effects that, if serious, could
result in suspension of existing licenses and delays in obtaining licenses in
other jurisdictions. A marketed product, manufacturer, and manufacturing
facilities are subject to continual review and periodic inspections, and later
discovery of previously unknown problems with a product, manufacturer, or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the product from the market. Noncompliance with applicable
governmental requirements can result in import detentions, fines, civil
penalties, injunctions, suspensions or loss of regulatory approvals, recall or
seizure of the Company's products, operating restrictions, government refusal to
approve product export applications or to allow the Company to enter into supply
contracts, and criminal prosecution. Additional governmental regulation may be
established which could prevent or delay regulatory approval of the Company's
products. Any delays or failure to receive required approvals or limiting
conditions on approvals could materially adversely affect the Company's
business, operating results, and financial condition. See "-- Government
Regulation."
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Risk of Technological Obsolescence
The medical device industry is characterized by rapid and significant
technological change. There can be no assurance that third parties will not
succeed in developing or marketing technologies and products that are more
effective than those developed or marketed by the Company, or that would render
the Company's technology and products obsolete or noncompetitive. Additionally,
new surgical procedures and medications could be developed that replace or
reduce the importance of current procedures that use the Company's products.
Accordingly, the Company's success will depend, in part, on its ability to
respond quickly to medical and technological changes through the development and
introduction of new products. There can be no assurance that the Company's
products will not become obsolete and that its efforts to develop will result in
any commercially successful products. In such event, the Company's business,
operating results, and financial condition could be materially adversely
affected. See "-- Competition."
Limited Third Party Reimbursement
The Company's products will be marketed to hospitals and other users that bill
various third party payers, including government programs, such as federal
Medicare and state Medicaid, and private insurance plans, for the health care
services provided to their patients. Third party payers carefully review and are
increasingly challenging the prices charged for medical products and services.
Although the Company intends to establish the prices for its products according
to criteria believed to be acceptable to third party payers, there can be no
assurance that such payers will not deny reimbursement on the basis that the
Company's products are not in accordance with established payer policies
regarding cost effective treatment methods, or on some other basis. There can be
no assurance that the Company would be able to provide economic and medical data
to overcome any third party payer objections.
In foreign markets, reimbursement is obtained from a variety of sources,
including governmental authorities, private health insurance plans, and labor
unions. In most foreign countries, there are also private insurance systems that
may offer payments for alternative therapies. Although not as prevalent as in
the United States, health maintenance organizations are emerging in certain
European countries. The Company may need to seek international reimbursement
approvals, although there can be no assurance that any such approvals will be
obtained in a timely manner or at all. Failure to receive international
reimbursement approvals could have an adverse effect on market acceptance of the
Company's products in the international markets in which such approvals are
sought.
There can be no assurance, as to either United States or foreign markets, that
third party reimbursement and coverage of newly approved products will be
available or adequate, that current reimbursement policies of third party payers
will not be decreased in the future, or that future legislation, regulation, or
reimbursement policies of third party payers will not otherwise adversely affect
the demand for the Company's products, or its ability to sell its products on a
profitable basis. If third party payer coverage or reimbursement is unavailable
or inadequate, the Company's business, financial condition, and results of
operations could be materially adversely affected. See "--Marketing and
Distribution."
Product Liability
The testing, marketing and sale of the Company's products could expose the
Company to liability claims. The Company currently has product liability
insurance which, the Company believes, is adequate for its current activities.
There can be no assurance, however, that the Company will be able to continue to
obtain such additional insurance at a reasonable cost, if at all, or that such
insurance would be sufficient to cover any liabilities resulting from any
product liability claims, or that the Company will have funds available to pay
any claims over the limits of its insurance. Either an underinsured or an
uninsured claim could have a material adverse effect on the Company's business,
operating results, and financial condition.
Need to Manage a Changing Business
The Company's business has experienced certain developments during 1998, which
have resulted in several significant changes in the Company's strategy and
business plan, including downsizing to what the Company considers to be the
minimal level of management and employees necessary to operate a publicly traded
medical device
16
<PAGE> 17
business. The Company believes its restructured organization is appropriate to
support modest growth over the next few years. However, losing any members of
the management team could have an adverse effect on the Company's operations.
The Company's success is dependent on its ability to attract and retain
technical and management personnel with expertise and experience in the medical
device business. The competition for qualified personnel in the medical device
industry is intense and, accordingly, there can be no assurance that the Company
will be successful in hiring or retaining the requisite personnel. The Company's
future success will depend, to a significant extent, on the ability of its
current and future management personnel to operate effectively. There can be no
assurance that the Company's personnel, systems, procedures, and controls will
be adequate to support the Company's future operations. Any failure to implement
and improve the Company's operational, financial, and management systems or to
expand, train, motivate or manage employees could have a material adverse effect
on the Company's business, financial condition, and results of operations. The
Company's future success will depend, in part, on management's ability to manage
future growth, and there can be no assurance that these efforts will be
successful. See "Item 9. Directors, Executive Officers, Promoters, and Control
Persons; Compliance with Section 16(a) of the Exchange Act."
Low Stock Price
The Company's Common Stock traded for less than $5.00 per share during most of
the second half of 1998, and all of the first half of 1999 through the date of
this prospectus. Common Stock has traded as low as $0.44 during 1998. Common
Stock is listed on the Nasdaq Stock Market ("Nasdaq"), whose rules require that
all listed shares must have a minimum bid price of $1.00. If Common Stock trades
on 120 business days without meeting the minimum bid price requirement for at
least 10 consecutive trading days, Nasdaq may delist it. Common Stock traded for
less than $1.00 per share during the fourth quarter of 1998, and most of January
and February 1999. Nasdaq notified Neoprobe that the Common Stock would be
delisted, unless the minimum bid price of common stock rose above $1 for an
adequate period, which it has done. Delisting would adversely affect the ability
of the Company to attract new investors. If the common stock is delisted, the
Selling shareholders may require Neoprobe to redeem their securities for $3.6
million, which would deplete Neoprobe's cash. If this happened, Neoprobe might
not be able to continue operations.
Furthermore, if common stock trades below $5.00 per share, it may be designated
a "penny stock." The Securities Exchange Act of 1934 and SEC Rules impose
special requirements on the trading of "penny stock." These requirements include
that a broker give investment risk, penny stock price history and broker direct
and indirect compensation disclosures to his customer, that the broker make a
reasonable determination that the transactions in penny stock are suitable for
the customer, and that the customer has sufficient knowledge and experience in
financial matters to evaluate this risks of penny stock transactions before
effecting any penny stock transactions for the customer. If common stock is
designated to be a "penny stock," these requirements may diminish the market
for, and the price of, common stock.
Anti-Takeover Provisions
The Company has adopted a Shareholder Rights Plan. Certain provisions of the
Shareholder Rights Plan and certain of the Company's charter provisions and
applicable corporate laws could be used to hinder or delay a takeover bid for
the Company. Such provisions may inhibit takeover bids and decrease the chance
of stockholders realizing a premium over market price for their Common Stock as
a result of a takeover. The Board amended the Shareholder Rights Plan in
February 1999, to permit an equity investment in the Company.
Blank Check Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of "blank
check" preferred stock with such terms as may be set by the Board of Directors.
500,000 shares of preferred stock have been designated as Series A Junior
Participating Preferred Stock and reserved for issuance under the Company's
Shareholder Rights Plan. If the Company issues preferred stock, the issuance
could be used to thwart a takeover bid and may have a dilutive effect upon the
Company's common stockholders. On February 16, 1999, the Company issued $3.0
million of 5% Series B Convertible Preferred Stock in a private placement. The
Company has the option to sell an additional $3.0 million Series B Preferred
Stock in the fourth quarter, at the earliest, subject to several conditions,
including shareholder approval of the transaction, and meeting operating revenue
and stock price targets. However, there can be no assurances that the
transaction will be approved by the shareholders or that the Company will be
able to achieve the required targets and close the additional placement on a
timely basis, on terms acceptable to the Company, or at all. If the shareholders
do not approve the transactions, the Company will be required to redeem the
preferred stock for $3.6 million. If this were to come to pass, the Company
would be in severe financial straights and might not be able to continue
operations. The terms of the Company's 5% Series B Convertible Preferred Stock
allow the holders to convert it into Common Stock at $1.03 per share. The
conversion price will be decreased to market values if the Common Stock is
trading at less than $1.03 per share subject to a floor price of $0.55 per
share. The dilutive effect of this provision could have a negative impact on
shareholders of the Company if the market price of Common Stock begins to
decline.
No Dividends
The Company has never paid dividends on its Common Stock. The Company intends to
retain any future earnings to finance its growth. Accordingly, any potential
investor who anticipates the need for current dividends from its investment
should not purchase any of the Common Stock offered hereby. See "Item 5. Market
for Common Equity and Related Stockholders Matters."
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases its office at 425 Metro Place North, Dublin, Ohio.
The Company executed a lease agreement, commencing on January 1, 1997 and ending
in May 2003, with the landlord of these facilities for
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<PAGE> 18
approximately 25,000 square feet. The lease provides for a monthly base rent of
approximately $21,700 in 1999 and increases to $26,000. During December, 1998,
and February, 1999, the Company executed two lease agreements to sublease
approximately 2,600 square feet and 4,600 square feet of the Company's office
space, respectively. The two subleases are expected generate monthly sublease
income of approximately $5,000 in 1999 and increases to $6,000 per month in
2003. The Company and its subtenants must also pay a pro-rata portion of the
operating and real estate taxes of the building. Neoprobe believes these
facilities are in good condition and will be adequate for its needs for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In June 1996 a lawsuit against the Registrant was terminated by dismissal. The
Registrant was named as an additional party defendant in the In Re Blech
Securities litigation pending in the United States District Court for the
Southern District of New York before Judge Robert Sweet in March 1995. The
plaintiffs were eight named individuals who were alleged to be representatives
of a class of securities purchasers. The defendants included David Blech, who
was a principal stockholder of the Registrant until September 1994, Mark
Germain, who was a director of the Registrant until September 1994, D. Blech &
Co., a registered broker-dealer owned by Mr. Blech, trustees of certain trusts
established by Mr. Blech, Bear Stearns & Co., Baird Patrick & Co., Parag Saxena
and Chancellor Capital Corp., as well as the Registrant and 10 other
corporations of which Mr. Blech was a principal stockholder (the "Corporate
Defendants"). The complaint alleged that David Blech and D. Blech & Co.
conducted a scheme intended to artificially inflate the prices of securities
issued by corporations Mr. Blech controlled; that Mr. Blech, D. Blech & Co. and
corporations controlled by Mr. Blech gave or sold cheap stock to fund managers
in order to induce them to participate in this scheme; and that David Blech, his
trusts, D. Blech & Co., Baird Patrick, Bear Stearns, the Corporate Defendants
and unnamed other persons engaged in sham transactions, including "round trip"
sales, for the purpose of artificially inflating trading volumes and securities
of corporations controlled by Mr. Blech and maintaining their trading prices.
The complaint alleged that David Blech was the controlling person and Mark
Germain was a director of the Corporate Defendants, and that the knowledge and
participation of Messrs. Blech and Germain in the alleged scheme were the
responsibility of the Corporate Defendants. The complaint also alleged that the
Corporate Defendants actively engaged in the alleged scheme and benefited from
it. The complaint further alleged that all of the defendants engaged in a
conspiracy to manipulate the market, and failed to disclose truthful information
about the true value of securities issued by corporations controlled by Mr.
Blech. The complaint alleged violations of Securities and Exchange Commission
Rule 10b-5 and common law fraud by all defendants, violations of the Racketeer
Influenced Corrupt Organizations Act (RICO) by defendants other than the
Corporate Defendants and liability under Securities Exchange Act 20(a), as the
liability of controlling persons, by Messrs. Blech and Germain and D. Blech &
Co., Baird Patrick and Bear Stearns. The amount of damages requested was not
specified in the complaint. In June 1996, Judge Sweet dismissed the allegations
against the Registrant and the other Corporate Defendants because the plaintiffs
had failed to identify the alleged fraudulent acts of the Registrant and the
other Corporate Defendants with the specificity required by federal law. The
dismissal terminated the action against the Registrant without any findings of
liability against Registrant in July 1996. The Judge's order can still be
appealed, and the time for appeal will not begin to run until a final judgment
has been entered in the entire multi-party proceeding.
The Company has one case, "Della Jules Bryant v. Neoprobe Corporation", pending
before the Court of Appeals for the State of Ohio. Ms. Bryant filed a complaint
on July 18, 1997 in Ohio Common Please Court against Neoprobe alleging racial
discrimination. On June 10, 1998, the trial judge granted Neoprobe's motion for
summary judgment. The plaintiff has appealed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 19
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages and positions are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Matthew F. Bowman 48 Senior Vice President, Operations and Marketing
David C. Bupp 49 President, Chief Executive Officer and Director
Patricia A. Coburn 54 Vice President, General Counsel
Brent L. Larson 35 Vice President, Chief Financial Officer
</TABLE>
Matthew F. Bowman has served as Senior Vice President, Operations and Marketing
of the Company since February 1998. From June 1996 until February 1998, Mr.
Bowman served as Vice President, Therapeutics of the Company. Prior to his
employment with the Company, Mr. Bowman was employed by Pharmacia Inc.
("Pharmacia") where he served as Vice President of the Therapeutic Products
Division from 1995 to 1996 and as Senior Director, Therapeutics, from 1993 to
1995. From 1988 to 1993, Mr. Bowman was employed by Adria Laboratories, Inc.
("Adria") where, in 1993, he served as Senior Director, New Business Development
and Licensing, from 1990 to 1992, he served as Director, New Business
Development and Licensing, and, from 1988 to 1990, he served as Associate
Director, New Business Development. Mr. Bowman has a B.A. degree in Political
Science from The Citadel.
David C. Bupp has served as President and a director of the Company since August
1992 and as Chief Executive Officer since February 1998. From August 1992 until
February 1998, Mr. Bupp served as Chief Operating Officer of the Company. From
August 1992 to May 1993, Mr. Bupp served as Treasurer of the Company. In
addition to the foregoing positions, from December 1991 to August 1992, he was
Acting President, Executive Vice President, Chief Operating Officer and
Treasurer, and from December 1989 to December 1991, he was Vice President,
Finance and Chief Financial Officer. From 1982 to December 1989, Mr. Bupp was
Senior Vice President, Regional Manager for AmeriTrust Company National
Association, a nationally chartered bank holding company, where he was in charge
of commercial banking operations throughout Central Ohio. Mr. Bupp has a B.A.
degree in Economics from Ohio Wesleyan University. Mr. Bupp completed a course
of study at Stonier Graduate School of Banking.
Patricia A. Coburn has served as Vice President, General Counsel of the Company
since February 1998. From August 1996 until February 1998, Ms. Coburn served as
Legal Counsel of the Company. Prior to her employment with the Company, Ms.
Coburn was employed by Pharmacia from 1994 until May 1996 where she served as
Assistant General Counsel. From September 1986 until 1994, Ms. Coburn was
employed by Adria where she served as Director, Intellectual Property until 1994
when Adria was acquired by Pharmacia. Ms. Coburn received a B.S. degree from the
University of Cincinnati in 1969 and a J.D. from the University of Toledo in
1977.
Brent L. Larson has served as Vice President, Chief Financial Officer since
February, 1999. Mr. Larson served as Vice President, Finance from June 1998 to
February 1999 and as Controller from July 1996 to June 1998. Prior to joining
Neoprobe, Mr. Larson was employed by Price Waterhouse LLP. Mr. Larson has a
B.B.A. degree in accounting from Iowa State University of Science and Technology
and is a Certified Public Accountant.
19
<PAGE> 20
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company trades on The Nasdaq Stock Market under the
trading symbol "NEOP". The prices set forth below reflect the high and low sale
prices for shares of Common Stock during the last two fiscal years as reported
by The Nasdaq National Market.
HIGH LOW
---- ---
Fiscal Year 1997
First Quarter $18.25 $12.88
Second Quarter 16.00 12.25
Third Quarter 15.00 10.50
Fourth Quarter 14.44 5.50
Fiscal Year 1998
First Quarter $ 6.75 $ 4.00
Second Quarter 6.56 2.38
Third Quarter 3.06 0.75
Fourth Quarter 2.50 0.44
As of March 19, 1999, the Registrant had approximately 678 holders of Common
Stock of record.
The Company has not paid any dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company intends
to retain any earnings to finance the growth of its business. There can be no
assurance that the Company will ever pay cash dividends. The terms of the
Company's 5% Series B Convertible Preferred Stock forbid the Company from paying
any dividends on its Common Stock until it has paid a special dividend of $100
per share plus any portion of the accrued 5% cumulative dividend. This would
amount to at least $3 million, a sum that the Company is unlikely to be able to
use for this purpose in the foreseeable future, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Recent Sales of Unregistered Securities
The following sets forth certain information regarding the sale of equity
securities of the Company during the period covered by this Report that were not
registered under the Securities Act of 1933.
In July 1998, the Board of Directors of the Company authorized the issuance of
2,893 shares of common stock to the trustees of its 401(k) employee benefit plan
without registration. Such issuance is exempt from registration under the Act
under Section 3(a)(2). The Plan is a pension, profit sharing or stock bonus plan
that is qualified under Section 401 of the Internal Revenue Code. The assets of
the Plan are held in a single trust fund for the benefit of the employees of the
Company which does not hold assets for the benefit of the employees of any other
employer. All of the contributions to the plan from employees of Neoprobe have
been invested in assets other than Common Stock. All of the Common Stock held by
the plan has been contributed to the plan by the Company as a matching
contribution and has been less in value at the time it was contributed to the
plan than the employee contributions which it matches.
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<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
The following summary financial data are derived from consolidated financial
statements of the Company which have been audited by the Company's independent
public accountants. These data are qualified in their entirety by, and should be
read in conjunction with, the Company's Consolidated Financial Statements and
Notes thereto included herein.
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data) Years Ended December 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 933 $ 960 $ 1,171 $ 5,128 $ 5,833
Gross profit 345 454 494 3,552 4,428
Research and development expenses 6,761 7,829 16,083 19,657 12,960
Marketing and selling expenses 1,532 4,307 5,268
General and administrative expenses 4,313 4,148 6,222 6,853 5,284
Loss related to subsidiaries in liquidation -- -- -- -- 9,385
-------- -------- -------- -------- --------
Loss from operations (10,730) (11,523) (23,342) (27,265) (28,468)
Other income 175 764 2,373 4,018 436
-------- -------- -------- -------- --------
Net loss $(10,555) $(10,759) $(20,969) $(23,247) $(28,033)
======== ======== ======== ======== ========
Net loss per common share from continuing
Operations (basic and diluted)(1) $ (1.18) $ (0.73) $ (1.06) $ (1.02) $ (1.23)
======== ======== ======== ======== ========
Shares used in computing net loss per
Common share (1) 8,926 14,726 19,743 22,735 22,842
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $ 7,839 $ 24,145 $ 63,873 $ 41,573 $ 11,994
Long-term obligations 300 1,182 1,009 2,069 156
Accumulated deficit (32,387) (43,147) (64,116) (87,363) (115,395)
</TABLE>
(1) Net loss per common share is based on the weighted average number of common
shares outstanding during the year. The loss per share for all periods presented
excludes the number of common shares issuable upon the conversion of preferred
stock and the number of shares issuable upon exercise of outstanding stock
options and warrants since such inclusion would be anti-dilutive.
21
<PAGE> 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The statements contained in this Management Discussion and Analysis of Financial
Condition and Results of Operations and other parts of this Report that are not
purely historical or which might be considered an opinion or projection
concerning the Company or its business, whether express or implied, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements may include statements regarding
the Company's expectations, intentions, plans or strategies regarding the future
which involve risks and uncertainties. All forward-looking statements included
in this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward looking
statements. It is important to note that the Company's actual results in 1999
and future periods may differ significantly from the prospects discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, limited revenues, continuing net
losses, accumulated deficit, future capital needs, uncertainty of capital
funding, competition, limited marketing experience, limited manufacturing
experience, dependence on principal product line, uncertainty of market
acceptance, patents, proprietary technology and trade secrets, government
regulation, risk of technological obsolescence, limited third party
reimbursement, product liability, need to manage a changing business, possible
volatility of stock, anti-takeover provisions, dependence on key personnel, and
no dividends.
BUSINESS ENVIRONMENT
Operating activities related to the Company's medical device business to-date
have been predominantly related to the United States which enjoyed overall
strong economic conditions during 1998 despite concerns over the impact of the
Asian crisis on the U.S. market. The medical device industry appears to be
experiencing growth consistent with other U.S. economic conditions. According to
the U.S. Health Manufactures Association ("HIMA"), the U.S. market for medical
devices grew 8% in 1998 over 1997. HIMA estimates a 7% growth rate for medical
devices in the U.S. in 1999. HIMA also expects that emerging markets will
account for nearly 16% of the global medical technology market by the end of the
year. Neoprobe intends to take advantage of growth in Asian and South American
markets through expanding its distributor relationships in these markets.
LIQUIDITY AND CAPITAL RESOURCES
Financing Activities. During 1996, 1997, and 1998, the Company raised net
proceeds of $50 million, $717,000 and $196,000, respectively, through the public
and private sale of equity securities. On February 16, 1999, the Company
completed the private placement of $3.0 million of convertible preferred stock.
The Company has the option to close on an additional $3.0 million placement of
convertible preferred stock in the fourth quarter of 1999, at the earliest,
subject to the completion of several conditions, including shareholder approval
of the transaction and meeting certain sales and stock performance targets.
However, there can be no assurances that the transaction will be approved by the
shareholders or that the Company will be able to achieve the required targets
and close the additional placement on a timely basis, at terms acceptable to the
Company, or at all. If the shareholders do not approve the transactions, the
Company will be required to redeem the preferred stock for $3.6 million. If this
were to come to pass, the Company would be in severe financial straights and
might not be able to continue operations.
Investing Activities. During 1996, 1997, and 1998, the Company made capital
investments in property and equipment of $3.6 million, $4.7 million and $3.4
million, respectively. The majority of these capital investments related to the
construction of a radiolabeling facility at Neoprobe (Israel) Ltd.
The Company determined during the second quarter of 1998, that Neoprobe Europe
was no longer needed to implement the Company's business plan, and put Neoprobe
Europe up for sale. During October 1998, the Company reached an agreement to
sell substantially all of the assets of Neoprobe Europe to a Swedish company
which paid the Company $125,000 and assumed certain contractual obligations of
Neoprobe Europe, such as the lease commitment. To account for the sale, the
Company recorded a provision of approximately $2.0 million during the
22
<PAGE> 23
third quarter of 1998, principally to write down the remaining assets of
Neoprobe Europe to their estimated realizable value. At December 31, 1998, the
Company has adopted the liquidation basis of accounting for Neoprobe Europe.
Accordingly, the consolidated balance sheet includes approximately $150,000 in
current assets of Neoprobe Europe at their net realizable value, and $70,000 in
liabilities at the amounts expected to settle the obligations due. Included in
operating results of subsidiaries in liquidation for 1998 is $1.7 million
related to the non-cash impairment of assets, $235,000 related to severance and
exit costs, and $1.2 million of losses from operations incurred prior to the
decision to liquidate.
Neoprobe Israel was founded by the Company and Rotem Industries Ltd. ("Rotem")
in 1994 to construct and operate a radiolabeling facility near Dimona, Israel.
Rotem, the private arm of the Israeli atomic energy authority, currently has a
5% equity interest in Neoprobe Israel and has the right to acquire an additional
4% under certain conditions related to the completion of the facility. Based on
the status of the Company's marketing applications in the U.S. and Europe, and
the Company's inability to find a development partner for its RIGS products, the
Company decided during 1998 to suspend construction and validation activities at
Neoprobe Israel. Following suspension of RIGS development activities at Neoprobe
Israel and unsuccessful attempts to market the facility, the Company initiated
actions during the fourth quarter of 1998 to liquidate Neoprobe Israel. The
Company has, therefore, adopted the liquidation basis of accounting for Neoprobe
Israel as of December 31, 1998. As the Company may relinquish ownership of the
facility to the bank if a suitable buyer cannot be found on a timely basis, the
Company has written down the value of the fixed assets of the facility and
reduced the recorded balance of the related debt to zero on the basis that the
bank would assume ownership of the facility under the collateralization terms of
the debt agreement. Accordingly, the consolidated balance sheet includes
approximately $555,000 in current assets of Neoprobe Israel at their net
realizable value and $876,000 in liabilities at the amounts expected to settle
the obligations due. Included in operating results of subsidiaries in
liquidation for 1998 is $5.1 million related to the primarily non-cash
adjustment of assets and liabilities to their net realizable value, $79,000
related to severance and other exit costs, and $1.0 million related to losses
from operations incurred prior to the decision to liquidate.
Operating Activities. During 1996, 1997, and 1998, the Company experienced net
losses of $21.0 million, $23.2 million, and $28.0 million, respectively. During
each of these three years, substantially all of the Company's efforts and
resources were devoted to research and clinical development of innovative
systems for the intraoperative diagnosis and treatment of cancers. These efforts
were principally related to the Company's proprietary RIGS system; however,
efforts during 1997 and 1998 also included activities related to development of
ILM-related products. To-date, the Company has financed its operations primarily
through the public and private sale of equity securities.
Operational Outlook. The Company's only approved products are instruments and
related products used in gamma guided surgery. The Company does not currently
have a RIGS drug or ACT product approved for commercial sale in any major
market. Based on the Company's modified business plan that focuses Company
resources on ILM, the Company does not anticipate commercial sales of sufficient
volume to generate positive cash flow from operations until late fiscal year
1999, at the earliest. The Company has incurred, and will continue to incur,
substantial expenditures for research and development activities related to
enhancing and expanding its current gamma guided surgery product portfolio and
to fund marketing development in bringing its products to the commercial market.
The Company currently estimates it will require approximately $5.2 million to
fund research and development and general and administrative activities in 1999.
The Company anticipates a significant portion of the cash necessary to fund such
operating activities will be generated from sales of its gamma guided surgery
products. However, there can be no assurance that any additional gamma guided
surgery products will be successfully introduced, or achieve market acceptance.
As of December 31, 1998, the Company had cash and cash equivalents and
available-for-sale securities of $3.5 million. Of this amount, approximately
$1.0 million is pledged as security associated with the Company's revolving line
of credit and $1.0 million is restricted related to the debt outstanding under
the financing program for the construction of Neoprobe Israel. At December 31,
1998, the Company had access to approximately $1.5 million in unrestricted funds
to finance its operating activities for 1999. In the first quarter of 1999, the
Company
23
<PAGE> 24
supplemented its cash on hand by issuing convertible preferred stock in a
private placement described above under "Financing Activities." The Company
currently anticipates that approximately $2.0 million in cash will be used to
finance operating activities during 1999. The Company anticipates an approximate
80% increase in sales during 1999 compared to 1998, due to increased sales
volumes of its gamma guided surgery products, at prices and margins similar to
what has been achieved in 1998. However, there can be no assurance that current
sales levels will be maintained or that increases in sales volumes and revenue
will occur, or that the prices and margins achieved on instrument sales in the
fourth quarter of 1998 will be maintained. The Company is attempting to sell
approximately $1.5 million in non-strategic assets. However, there can be no
assurance that these assets will be sold during 1999, on terms acceptable to the
Company, or at all. If the Company does not receive these anticipated funds, it
may need to further modify its business plan and seek other financing
alternatives. Such financing may require further sales of equity securities that
could be dilutive to current holders of common stock, debt financing which may
be on unfavorable terms, or asset dispositions that could force the Company to
further change its business plan. The Company also expects to experience cost
savings during 1999, as a result of modifications to its business plan regarding
RIGS and ACT.
At December 31, 1998, the Company had U.S. net operating tax loss carryforwards
of approximately $95.5 million to offset future taxable income through 2018.
Additionally, the Company has U.S. tax credit carryforwards of approximately
$3.3 million available to reduce future income tax liability through 2018. Under
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, use of
prior tax loss and credit carryforwards is limited after an ownership change. As
a result of ownership changes as defined by Sections 382 and 383, which have
occurred at various points in the Company's history, management believes
utilization of the Company's tax loss carryforwards and tax credit carryforwards
may be limited. The Company's international subsidiaries also have net operating
tax loss carryforwards in their respective foreign jurisdictions. However, as
the Company is in the process of liquidating its interests in both foreign
subsidiaries as of December 31, 1998, the Company does not anticipate that the
foreign loss carryforwards will be utilized within their respective
jurisdictions.
The Company has executed various agreements with third parties that supplement
the technical and marketing capabilities of the Company. The Company is
generally obligated to such parties to pay royalties or commissions upon
commercial sale of the related product. The Company's estimate of its allocation
of cash resources is based on the current state of its business operations, its
current business plan, and current industry and economic conditions, and is
subject to revisions due to a variety of factors including without limitation,
additional expenses related to marketing and distribution, regulatory licensing
and research and development, and to reallocation among categories and to new
categories. The Company may need to supplement its funding sources from time to
time.
Impact of Recent Accounting Pronouncements. In June 1998, the Financial
Accounting Standard Board issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities,
which is required to be adopted in years beginning after June 15, 1999. The
Company expects to adopt SFAS No. 133 effective January 1, 2000. The Statement
will require companies to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedge asset, liability or firm commitment through
earnings, or recognized in other comprehensive income until the hedge item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The Company does not
anticipate that the adoption of this Statement will have a significant effect on
its results of operations or financial position.
Y2K. As many computer systems and other equipment with embedded chips or
processors (collectively, "Business Systems") use only two digits to represent
the year, they may be unable to process accurately certain data before, during
or after the year 2000. As a result, business and governmental entities are at
risk for possible miscalculations or system failures causing disruptions in
their business operations. This is commonly known as the Year 2000 ("Y2K") issue
or Century Date Change ("CDC") issue. The CDC issue can arise at any point in
the Company's supply, manufacturing, distribution, and financial chains. The
Company is in the process of implementing an
24
<PAGE> 25
assessment and readiness plan with the objective of having all its significant
internal Business Systems functioning properly with respect to the Y2K issue
before January 1, 2000, and minimizing the possible disruptions to the Company's
business which could result from the Y2K problem.
As part of its readiness plan, the Company is in the process of conducting a
company-wide assessment of its Business Systems to identify elements that are
not Y2K compliant. Based on assessment activity to date, the Company presently
believes that the majority of its critical Business Systems have been purchased
and installed in recent years and are already Y2K compliant. The Company's
internal Business Systems do not have internally generated programmed software
coding to correct, as substantially all of the software utilized by the Company
has been recently purchased or licensed from external vendors. At the completion
of the assessment phase, the Company intends to perform comprehensive testing of
its Business Systems in early 1999.
Those Business Systems that are not presently Y2K compliant are anticipated to
be replaced, upgraded or modified in the normal replacement cycle prior to 2000.
The Company estimates the total cost to the Company of completing any required
modifications, upgrades, or replacements of its internal systems will not have a
material adverse effect on the Company's business. This estimate is being
monitored and will be revised, as additional information becomes available.
The Company has also initiated communications with third parties whose Business
Systems functionality could impact the Company. These communications will
facilitate coordination of Y2K solutions and will permit the Company to
determine the extent of which it may be vulnerable to failures of third parties
to address their own Y2K issues. Because the manufacturing and distribution of
the Company's products are almost entirely outsourced to other entities, the
failure of these third parties to achieve Y2K compliance could have a material
impact on the Company's business, financial position, results of operations and
cash flows. The Company has attempted, where possible, to establish contractual
requirements for Y2K compliance by such third parties. However, the Company has
limited control over the actions of these third parties on which the Company
directly or indirectly places reliance. There can be no guarantee that such
systems that are not now Y2K compliant will be timely converted to Y2K
compliance.
The Company has also assessed the potential Y2K related exposure it may have
with respect to gamma detection instrumentation which it has delivered to
customers. The Company does not believe products it has distributed to date or
that may be distributed in the future face any significant Y2K problems which
will affect their functionality or utility by the customer.
The Company does not yet have a comprehensive contingency plan with respect to
the Y2K issue but intends to establish such a plan during calendar 1999 as part
of its ongoing Y2K compliance effort.
The foregoing assessment of the impact of the Y2K problem on the Company is
based on management's best estimates at the present time and could change
substantially. The assessment is based on numerous assumptions as to future
events. There can be no guarantee that these estimates will prove accurate, and
actual results could differ from those estimates if these assumptions prove
inaccurate.
RESULTS OF OPERATIONS
Since inception, the Company has dedicated substantially all of its resources to
research and development of its RIGS technology for the intraoperative diagnosis
and treatment of cancer. Until the appropriate regulatory approvals are
received, the Company is limited in its ability to generate revenue from these
sources. During 1998, the Company generated sales of gamma detection instruments
of $5.8 million. Results of operations for the year include approximately $1.2
million in costs associated with the restructuring domestic operating activities
of the Company during 1998 in addition to $9.4 million in expenses which were
recorded related to placing its two international subsidiaries in liquidation.
Research and development expenses during 1998 were $13.0 million, or 53% of
operating expenses for the year. Marketing and selling expenses were $5.3
million, or 16% of operating expenses during the year, and general and
25
<PAGE> 26
administrative expenses were $5.1 million, or 16% of operating expenses for the
year. The Company recorded $9.3 million in charges during 1998 related to the
third quarter decision to close Neoprobe Europe and the fourth quarter decision
to shut down the facility at Neoprobe Israel. The Company anticipates that 1999
total operating expenses will decrease over 1998. The Company expects research
and development and general and administrative expenses to decrease from 1998
levels as a result of the modifications to the business plan adopted during the
fourth quarter of 1998. However, the Company also expects marketing and selling
expenses to increase from 1998 levels although such expenses are expected to
decrease as a percentage of sales.
Years ended December 31, 1997 and 1996.
Revenue. Net sales increased $3.9 million or 325% to $5.1 million in 1997 from
$1.2 million in 1996. In 1997, net sales included instrument sales of $5 million
and sales of blood serology products of $125,000. In 1996, net sales included
instrument sales of $780,000 and sales of blood serology products of $391,000.
Instrument sales increased as a result of the introduction of the Neoprobe 1500
system and the continuing growth of the lymphatic mapping technique. Sales of
serology products at Neoprobe Europe continued to decrease as a result of the
Company's efforts to develop the long-term production capacity for targeting
agents.
Research and Development Expenses. Research and development expenses increased
$3.6 million or 22% to $19.7 million in 1997 from $16.1 million in 1996. The
increase is a result of a substantial increase in instrument development and
design and in manufacturing validation activities during 1997. Clinical trial
costs decreased during the year as clinical trial activity related to RIGScan
CR49 declined following the submission of applications to regulatory bodies for
marketing approval. The decline in costs related to RIGScan CR49 was partly
offset by an increase in costs related to the development of ACT technology
during the period.
Marketing and Selling Expenses. Marketing and selling expenses increased $2.8
million or 187% to $4.3 million in 1997 from $1.5 million in 1996. The increase
was directly related to increased instrument sales during the year. The Company
was obligated to pay a commission to USSC for devices sold through the
termination of the Company's agreement with USSC in October 1997. In addition,
the Company hired additional marketing staff during the period to support the
lymphatic mapping business.
General and Administrative Expenses. General and administrative expenses
increased $630,000 or 10% to $6.9 million in 1997 from $6.2 million in 1996. The
increase was primarily a result of growth in staff and increased costs for rent,
leases, taxes, and other expenses. Other expenses increased primarily as a
result of greater travel and insurance costs.
Other Income. Other income increased $1.6 million or 67% to $4 million in 1997
from $2.4 million in 1996. Other income in 1997 consisted of interest income of
$2.2 million and miscellaneous income of $2 million representing recognition of
income of a license fee received from USSC, net of interest and other expenses.
During 1996, other income was $2.4 million and represented primarily interest
income earned during the period.
Years ended December 31, 1998 and 1997
Revenue and Other Income. Net sales increased $705,000 or 14% to $5.8 million
during 1998 from $5.1 million during 1997. Net sales in both years were composed
almost entirely of instrument sales. Instrument sales in 1997 reflect
contributions from the Company's marketing arrangement with USSC which was
terminated in October 1997. Instrument sales during 1998 were based on leads
generated primarily by the Company's clinical specialists' sales force with
assistance from representatives of Ethicon Endo-Surgery ("EES"), a Johnson &
Johnson company, subsequent to initial training of EES representatives in June
1998.
Research and Development Expenses. Research and development expenses decreased
$6.7 million or 34% during 1998 to $13 million from $19.7 million in 1997,
excluding approximately $1.5 million in 1998 research and development costs
related to Neoprobe Europe and Neoprobe Israel which were reclassified to losses
related to subsidiaries in liquidation in connection with the adoption of the
liquidation basis of accounting for these subsidiaries during the fourth quarter
of 1998. The decrease reflects the Company's efforts to reduce costs
26
<PAGE> 27
consistent with the refocused business plan announced in February 1998, which
was further modified in the third and fourth quarters of 1998. Research and
development costs in 1998 include approximately $1 million related to severance
and other separation-related costs and an impairment charge of $1 million
related to technology licensed from the Dow Chemical Company. Such costs were
offset by decreases in project expenses related to RIGScan CR49 pending
identification of a development partner and decreases in instrument-related
project expenses due to the wind-down of the design phase of neo2000 and related
products. Pipeline projects also decreased related to the refocused business
plan.
Marketing and Selling Expenses. Marketing and selling expenses increased by
$960,000 or 22% to $5.3 million in 1998 from $4.3 million in 1997. The increase
in marketing expenses during 1998, as compared to the same period in 1997,
relates to an increased marketing effort to meet competitive pressure and
further penetrate the ILM market. The increased expenses were the result of a
greater number of sales and marketing personnel in 1998, coupled with relative
increases in travel and entertainment as well as promotional costs associated
with the launch of new products.
General and Administrative Expenses. General and administrative expenses
decreased $1.6 million or 23% to $5.2 million for 1998 from $6.8 million in
1997, excluding $1.0 million in 1998 general and administrative costs related to
Neoprobe Europe and Neoprobe Israel which were reclassified to losses related to
subsidiaries in liquidation in connection with the adoption of the liquidation
basis of accounting for these subsidiaries during the fourth quarter of 1998.
Severance and other overhead and employee separation costs of $160,000 related
to 1998 restructuring activities were offset by an overall lower headcount
during 1998 as compared to 1997.
Losses related to Subsidiaries in Liquidation. Losses related to subsidiaries in
liquidation increased to $9.4 million in 1998 from $0 in 1997. This increase is
due to changes in the Company's business plan which occurred throughout 1998
that ultimately resulted in the shutdown of both of the Company's international
subsidiaries, Neoprobe Europe and Neoprobe Israel. Related to the decision to
shutdown operations at these subsidiaries, the Company adopted the liquidation
basis of accounting for both subsidiaries as of December 31,1998. Included in
operating results of subsidiaries in liquidation for 1998 is $1.7 million
related to the non-cash impairment of assets, $235,000 related to severance and
exit costs, and $1.2 million of losses from operations incurred prior to the
decision to liquidate Neoprobe Europe. Included in operating results of
subsidiaries in liquidation for 1998 is $5.1 million related to the primarily
non-cash adjustment of assets and liabilities to their net realizable value,
$79,000 related to severance and other exit costs, and $1.0 million related to
operations incurred prior to the decision to liquidate Neoprobe Israel.
Other Income. Other income during 1998 and 1997 was $436,000 and $4.0 million,
respectively. Other income in 1998 was comprised primarily of interest income of
$598,000 compared to interest income in 1997 of $2.2 million, both of which were
offset by interest expenses on the Company's outstanding debt. The change in
interest income is the result of lower overall funds available for investment in
1998. Other income in 1997 also included miscellaneous income of $2 million
representing recognition of income of a license fee received from USSC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not currently use derivative financial instruments, such as
interest rate swaps, to manage its exposure to changes in interest rates for its
debt instruments or investment securities. As of December 31, 1997 and 1998, the
Company had outstanding debt instruments of $2.4 million and $1.5 million,
respectively. Outstanding debt consisted primarily of variable rate long-term
debt and a variable rate line of credit as of December 31, 1997 and 1998,
respectively, with average interest rates of 7% for both years. At December 31,
1997 and 1998, the fair market values of the Company's debt instruments
approximated their carrying values. A hypothetical 100-basis point change in
interest rates would not have a material effect on cash flows, income or market
values.
The Company has maintained investment portfolios of available-for-sale corporate
and U.S. government debt securities purchased with proceeds from the Company's
public and private placements of equity securities. The market value of these
investments at December 31, 1997 and 1998 was approximately $14.7 million and
$449,000,
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<PAGE> 28
respectively. A hypothetical 10% decrease in the prices for these securities at
December 31, 1998 would decrease the fair value by approximately $45,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company, and the related notes, together with
the reports of KPMG LLP and PricewaterhouseCoopers LLP dated March 29, 1999 and
February 20, 1998, respectively, are set forth at pages F-1 through F-24
attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 1, 1998, after discussions between the Registrant and
PricewaterhouseCoopers LLP ("PWC"), the Registrant's principal accountant, the
parties agreed that PWC would not conduct the Registrant's 1998 fiscal year-end
audit. Discussions between the parties were initiated by PWC; however, during
the Registrant's two most recent fiscal years and subsequent interim periods, no
reports or financial statements issued by PWC contained an adverse opinion or
disclaimer or were qualified or modified as to uncertainty, audit scope or
accounting principles. Further, during the Registrant's two most recent fiscal
years and subsequent interim periods, there were no disagreements between the
Registrant's management and PWC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PWC would have caused PWC
to make reference to the subject matter of the disagreements in connection with
PWC's reports. KPMG LLP was engaged as the Company's principal accountant on
December 8, 1998.
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<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the Registrant's directors will be set forth at "ELECTION
OF DIRECTOR" in the Registrant's Proxy Statement for its 1999 Annual Meeting of
Shareholders (the "1999 Proxy Statement") which information is incorporated
herein by reference. Information required by this Item concerning compliance
with Section 16(a) of the Exchange Act will be set forth at "SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the 1999 Proxy Statement which
information is incorporated herein by reference. Information regarding the
Registrant's executive officers is set forth in PART I of this report at
"Supplemental Item. Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be set forth at "COMPENSATION OF
MANAGEMENT" in the 1999 Proxy Statement which information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be set forth at "SECURITY OWNERSHIP
OF PRINCIPAL STOCKHOLDERS, DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS" in the
1999 Proxy Statement which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be set forth at "CERTAIN
TRANSACTIONS" in the 1999 Proxy Statement which information is incorporated
herein by reference.
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<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) LIST OF EXHIBITS AND FINANCIAL STATEMENTS FILED AS PART OF
THIS REPORT
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1. Complete Restated Certificate of Incorporation of Neoprobe
Corporation, as corrected February 18, 1994 and as amended
June 27, 1994, July 25, 1995, June 3, 1996 and March 17, 1999.
3.2. Amended and Restated By-Laws, dated July 21, 1993, as amended
July 18, 1995 and May 30, 1996 (incorporated by reference to
Exhibit 99.4 to the June 1996 Form 8-K).
(4) INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS, INCLUDING
INDENTURES
4.1. See Articles FOUR, FIVE, SIX and SEVEN of the Restated
Certificate of Incorporation of the Registrant (see Exhibit
3.1).
4.2. See Articles II and VI and Section 2 of Article III and
Section 4 of Article VII of the Amended and Restated By-Laws
of the Registrant (see Exhibit 3.2).
4.3. Rights Agreement dated as of July 18, 1995 between the
Registrant and Continental Stock Transfer & Trust Company
(incorporated by reference to Exhibit 1 to the registration
statement on Form 8-A, Commission File No. 0-26520).
4.4. Amendment Number 1 to the Rights Agreement between the
Registrant and Continental Stock Transfer & Trust Company
dated February 16, 1999.
(10) MATERIAL CONTRACTS (*indicates management contract or
compensatory plan or arrangement).
10.1.1.--10.1.24. Reserved.
10.1.25. Rights Agreement between the Registrant and Continental Stock
Transfer & Trust Company dated as of July 18, 1995 (see
Exhibit 4.3).
10.1.26.--10.1.30. Reserved.
10.1.31. Amendment Number 1 to the Rights Agreement between the
Registrant and Continental Stock Transfer & Trust Company
dated February 16, 1999 (see Exhibit 4.4).
10.1.32. Preferred Stock and Warrant Purchase Agreement dated February
16, 1999 among the Registrant, The Aries Master Fund, a Cayman
Island exempted company, and The Aries Domestic Fund, L.P.
10.1.33. Warrant dated February 16, 1999 for the purchase of shares to
purchase Common Stock issued to The Aries Master Fund, a
Cayman Island exempted company. This exhibit is one of two
substantially identical instruments and is accompanied by a
schedule identifying the other instrument omitted and setting
forth the material details in which such instrument differs
from the one filed herewith.
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<PAGE> 31
10.1.34. Option Units dated February 16, 1999 for the purchase of
shares of 5% Series B Convertible Preferred Stock of the
Registrant and warrants to purchase shares of Common Stock
issued to Paramount Capital, Inc.
10.1.35. Financial Advisory Agreement dated February 16, 1999 between
the Registrant and Paramount Capital, Inc.
10.1.36. Letter agreement dated February 24, 1999 among the Registrant,
The Aries Master Fund, a Cayman Island Exempted Company and
The Aries Domestic Fund, L.P.
10.1.37. Letter agreement dated March 12, 1999 among the Registrant,
The Aries Master Fund, a Cayman Island Exempted Company and
The Aries Domestic Fund, L.P.
10.1.38. Letter agreement dated April 1, 1999 among the Registrant, The
Aries Master Fund, a Cayman Island Exempted Company, and The
Aries Domestic Fund, L.P.
10.2.1.-- 10.2.14. Reserved.
10.2.15. Option Agreements between the Registrant and David C. Bupp
(incorporated by reference to Exhibit 10.7 to the Registrant's
registration statement on Form S-1; No. 33-51446 (the "Form
S-1")).*
10.2.16.--10.2.17. Reserved.
10.2.18. Non-Qualified Stock Option Agreement dated May 3, 1993 between
the Registrant and David C. Bupp (incorporated by reference to
Exhibit 10.50 to the Registrant's Quarterly Report on Form
10--QSB for the quarterly period ended June 30, 1993;
Commission File No. 0-26520 (the "2nd Quarter 1993 Form
10-QSB")).*
10.2.19.--10.2.20. Reserved.
10.2.21. Non-Qualified Stock Option Agreement dated May 3, 1993 between
the Registrant and John L. Ridihalgh (incorporated by
reference to Exhibit 10.53 to the 2nd Quarter 1993 Form
10-QSB).*
10.2.22. Reserved.
10.2.23. Non-Qualified Stock Option Agreement dated February 28, 1992
and amended and restated June 3, 1993 between the Registrant
and David C. Bupp (incorporated by reference to Exhibit 99.5
to Registrant's report on Form 8-K dated January 21, 1994;
Commission File No. 0-26520 (the "January 1994 Form 8-K")).*
10.2.24. Non-Qualified Stock Option Agreement dated July 1, 1990 and
amended and restated June 3, 1993 between the Registrant and
David C. Bupp (incorporated by reference to Exhibit 99.6 to
the January 1994 Form 8-K).*
10.2.25. Non-Qualified Stock Option Agreement dated June 1, 1992 and
amended and restated June 3, 1993 between the Registrant and
John L. Ridihalgh (incorporated by reference to Exhibit 99.7
to the January 1994 Form 8-K).*
10.2.26. Amended and Restated Stock Option and Restricted Stock
Purchase Plan dated March 3, 1994 (incorporated by reference
to Exhibit 10.2.26 to Registrant's annual report on Form
10-KSB for the year ending December 31, 1993; Commission File
No. 0-26520 (the "1993 Form 10-KSB")).*
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<PAGE> 32
10.2.27.--10.2.28. Reserved.
10.2.29. Non-Qualified Stock Option Agreement dated February 16, 1995
between the Registrant and John L. Ridihalgh (incorporated by
reference to Exhibit 10.2.29 to the 1994 Form 10-KSB).*
10.2.30. Non-Qualified Stock Option Agreement dated February 16, 1995
between the Registrant and David C. Bupp (incorporated by
reference to Exhibit 10.2.30 to the 1994 Form 10-KSB).*
10.2.31. Employment Agreement dated as of January 1, 1996 between the
Registrant and John L. Ridihalgh (incorporated by reference to
Exhibit 10.2.31 to the Registrant's Quarterly Report on Form
10-QSB for the quarterly period ended June 30, 1996;
Commission File No. 0-26520 (the "2nd Quarter 1996 Form
10-QSB")).*
10.2.32.-10.2.33. Reserved.
10.2.34. Restricted Stock Purchase Agreement dated June 5, 1996 between
the Registrant and John L. Ridihalgh (incorporated by
reference to Exhibit 10.2.32 to the Registrant's Annual Report
on Form 10-KSB for the year ending December 31, 1997 (the
"1997 Form 10-KSB"); Commission File No. 0-26520).*
10.2.35. Restricted Stock Purchase Agreement dated June 5, 1996 between
the Registrant and David C. Bupp (incorporated by reference to
Exhibit 10.2.35 to the 1997 Form 10-KSB).*
10.2.36. Reserved.
10.2.37. 1996 Stock Incentive Plan dated January 18, 1996 as amended
March 13, 1997 (incorporated by reference to Exhibit 10.2.37
to the 1997 Form 10-K).*
10.2.38. Non-Qualified Stock Option Agreement dated January 18, 1996
between the Registrant and John L. Ridihalgh (incorporated by
reference to Exhibit 10.2.38 to the 1997 Form 10-K).*
10.2.39. Non-Qualified Stock Option Agreement dated January 18, 1996
between the Registrant and David C. Bupp (incorporated by
reference to Exhibit 10.2.39 to the 1997 Form 10-K).*
10.2.40. Non-Qualified Stock Option Agreement dated February 3, 1997
between the Registrant and John L. Ridihalgh (incorporated by
reference to Exhibit 10.2.40 to the 1997 Form 10-K).*
10.2.41. Non-Qualified Stock Option Agreement dated February 3, 1997
between the Registrant and David C. Bupp (incorporated by
reference to Exhibit 10.2.41 to the 1997 Form 10-K).*
10.2.42. Reserved.
10.2.43. Agreement, Release, and Waiver dated February 23, 1998 between
the Registrant and Dr. William Eisenhardt (incorporated by
reference to the Registrant's quarterly report on Form 10-Q
for the quarter ending March 31, 1998; Commission File No.
0-26520).*
10.2.44. Employment Agreement dated as of January 1, 1998 between the
Registrant and David C. Bupp. (incorporated by reference to
Exhibit 10.2.44 of the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998; Commission
File No. 0-26520 (the "2nd Quarter 1998 Form 10-Q")).*
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<PAGE> 33
10.2.45. Restricted Stock Purchase Agreement between David C. Bupp and
the Registrant dated May 20, 1998 (incorporated by reference
Exhibit 10.2.45 to the 2nd Quarter 1998 Form 10-Q.*
10.2.46. Waiver by David Bupp dated February 16, 1999 of certain
provisions in the employment agreement between the Registrant
and David C. Bupp dated January 1, 1998.*
10.2.47. Severance Agreement dated October 23, 1998 between the
Registrant and Matthew F. Bowman. This agreement is one of
four substantially identical agreements and is accompanied by
a schedule identifying the other agreements omitted and
setting forth the material details in which such documents
differ from the one that is filed herewith.*
10.2.48. Restricted Stock Agreement dated October 23, 1998 between the
Registrant and Matthew F. Bowman. This agreement is one of
three substantially identical agreements and is accompanied by
a schedule identifying the other agreements omitted and
setting forth the material details in which such documents
differ from the one that is filed herewith.*
10.2.49. Separation Agreement dated October 21, 1998 between the
Registrant and John L. Ridihalgh.*
10.3.1. Technology Transfer Agreement dated July 29, 1992 between the
Registrant and The Dow Chemical Corporation (incorporated by
reference to Exhibit 10.10 to the Form S-1, confidential
portions of which were omitted and filed separately with the
Commission subject to an order granting confidential
treatment).
10.3.2.--10.3.29. Reserved.
10.3.30. Facility Agreement dated July 17, 1995 among Registrant,
Neoprobe (Israel) Ltd., and Rotem Industries, Ltd.
(incorporated by reference to Exhibit 10.3.30 to Registrant's
Quarterly Report on Form 10-QSB for the quarter ending
September 30, 1995, Commission File No. 0-26520 (the "3rd
Quarter 1995 Form 10-QSB"), confidential portions of which
were omitted and filed separately with the Commission subject
to an order granting confidential treatment).
10.3.31. Cooperative Research and Development Agreement between
Registrant and National Cancer Institute (incorporated by
reference to Exhibit 10.3.31 to the 3rd Quarter 1995 Form
10-QSB).
10.3.32. First Amendment to Facility Agreement dated July 17, 1995
among Registrant, Neoprobe (Israel), Ltd. and Rotem
Industries, Ltd (incorporated by reference to Exhibit 10.3.32
to the Registrant's Annual Report on Form 10-KSB for the year
ending December 31, 1995; Commission File No. 0-26520 (the
"1995 Form 10-KSB")).
10.3.33.-10.3.34. Reserved.
10.3.35. Investors' Rights Agreement dated February 5, 1996 between
Registrant and XTL Biopharmaceuticals, Ltd. (incorporated by
reference to Exhibit 10.3.35 to the 1st Quarter 1996 Form
10-QSB).
10.3.36. Reserved.
10.3.37 Research and Development Agreement dated February 13, 1996
between Registrant and XTL Biopharmaceuticals, Ltd.
(incorporated by reference to Exhibit 10.3.37 to the 1st
Quarter 1996 Form 10-QSB, confidential portions of which were
omitted and filed separately with the Commission subject to an
order granting confidential treatment).
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<PAGE> 34
10.3.38 Sublicense Agreement dated February 13, 1996 between
Registrant and XTL Biopharmaceuticals, Ltd. (incorporated by
reference to Exhibit 10.3.38 to the 1st Quarter 1996 Form
10-QSB, confidential portions of which were omitted and filed
separately with the Commission subject to an order granting
confidential treatment).
10.3.39.-10.3.44. Reserved.
10.3.45 License dated May 1, 1996 between Registrant and The Dow
Chemical Company (incorporated by reference to Exhibit 10.3.45
to the 2nd Quarter 1996 Form 10-QSB).
10.3.46 License Agreement dated May 1, 1996 between Registrant and The
Dow Chemical Company (incorporated by reference to Exhibit
10.3.46 to the 2nd Quarter 1996 Form 10-QSB, confidential
portions of which were omitted and filed separately with the
Commission subject to an order granting confidential
treatment).
10.3.47. License and Option Agreement between Cira Technologies, Inc.
and Neoprobe Corporation dated April 1, 1998 (incorporated by
reference to Exhibit 10.3.47 to the 2nd Quarter 1998 Form
10-Q).
10.3.48. Restated Subscription and Option Agreement between the
Registrant, Cira Technologies, Inc., Richard G. Olsen, John L.
Ridihalgh, Richard McMorrow, James R. Blakeslee, Mueller &
Smith, Ltd., Pierre Triozzi and Gregory Noll, dated April 17,
1998 (incorporated by reference to Exhibit 10.3.48 to the 2nd
Quarter 1998 Form 10-Q).
10.3.49. Restated Stockholders Agreement with the Registrant, Cira
Technologies, Inc., Richard G. Olsen, John L. Ridihalgh,
Richard McMorrow, James R. Blakeslee, Mueller & Smith, Ltd.,
Pierre L. Triozzi and Gregory Noll, dated April 17, 1998
(incorporated by reference to Exhibit 10.3.49 to the 2nd
Quarter 1998 Form 10-Q).
10.4.1.--10.4.15. Reserved.
10.4.16. Project Management Agreement dated May 17, 1995 between
Neoprobe (Israel) Ltd. and BARAN Project Construction Ltd.
(incorporated by reference to Exhibit 10.4.16 to the 2nd
Quarter 1995 Form 10-QSB).
10.4.17-10.4.21. Reserved.
10.4.22. Sales and Marketing Agreement dated April 21, 1998 between the
Registrant and Ethicon Endo-Surgery, Inc., an Ohio corporation
(incorporated by reference to Exhibit 10.4.22 to the 2nd
Quarter 1998 Form 10-Q, confidential portions of which were
omitted and filed separately with the Commission subject to an
order granting confidential treatment).
10.4.23. Loan Agreement between the Registrant and Bank One, NA, dated
April 16, 1998 (incorporated by reference to Exhibit 10.4.23
to the 2nd Quarter 1998 Form 10-Q).
10.4.24. Variable Rate Cognovit Promissory Note, dated April 16, 1998,
issued by Registrant to Bank One, NA (incorporated by
reference to Exhibit 10.4.24 to the 2nd Quarter 1998 Form
10-Q).
10.4.25. Security Agreement between the Registrant and Bank One, NA,
dated April 16, 1998 (incorporated by reference to Exhibit
10.4.25 to the 2nd Quarter 1998 Form 10-Q).
34
<PAGE> 35
10.4.26. Letter amendment dated October 14, 1998 to the Sales and
Marketing Agreement dated April 21, 1998 between the
Registrant and Ethicon Endo-Surgery, Inc., an Ohio corporation
(incorporated by reference to Exhibit 10.4.26 to the
Registrant's quarterly report on Form 10-Q for the quarter
ending September 30, 1998, confidential portions of which were
omitted and filed separately with the Commission subject to an
order granting confidential treatment; Commission File No.
0-26520 (the "3rd Quarter 1998 Form 10-Q")).
10.4.27. Promissory Note, dated September 25, 1998, issued by
Registrant to Bank One, NA (incorporated by reference to
Exhibit 10.4.27 to the 3rd Quarter Form 10-Q).
10.4.28. Addendum to Promissory Note dated September 25, 1998 issued by
Registrant to Bank One, NA (incorporated by reference to
Exhibit 10.4.28 to the 3rd Quarter Form 10-Q).
10.4.29. Covenant Agreement dated September 25, 1998 between the
Registrant and Bank One, NA (incorporated by reference to
Exhibit 10.4.29 to the 3rd Quarter Form 10-Q).
10.4.30. Assignment of Deposit Account dated September 25, 1998 between
Registrant and Bank One, NA (incorporated by reference to
Exhibit 10.4.30 to the 3rd Quarter Form 10-Q).
10.4.31. Asset Purchase Agreement dated October 14, 1998 between the
Registrant, Neoprobe AB, a corporation organized and existing
under the laws of Sweden, and Bioinvent Production AB, a
corporation organized and existing under the laws of Sweden
(incorporated by reference to Exhibit 10.4.31 to the 3rd
Quarter Form 10-Q).
10.4.32. Supply Agreement between the Registrant and eV Products dated
December 8, 1997 (filed pursuant to Rule 24b-2 under which the
Registrant has requested confidential treatment of certain
portions of this Exhibit).
(11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS.
11.1. Computation of Net Loss Per Share.
(21) SUBSIDIARIES OF THE REGISTRANT.
21.1. Subsidiaries of the Registrant.
(23) CONSENT OF EXPERTS AND COUNSEL.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
(24) POWERS OF ATTORNEY.
24.1. Powers of Attorney.
24.2. Certified resolution of the Registrant's Board of
Directors authorizing officers and directors signing on
behalf of the Company to sign pursuant to a power of
attorney.
35
<PAGE> 36
(B) REPORTS ON FORM 8-K.
The Registrant filed a current Report on Form 8-K on December 8, 1998
to report information under Item 4. Changes in Registrant's
Certifying Accountant.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: April 1, 1999
NEOPROBE CORPORATION
(the "Registrant")
By: /s/ David C. Bupp
---------------------------------
David C. Bupp, President and
Chief Executive Officer
36
<PAGE> 37
Pursuant to the requirements of the Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/David C. Bupp Director, President and Chief April 1, 1999
- -------------------------------------- Executive Officer
David C. Bupp (principal executive officer)
/s/Brent L. Larson* Vice President, Finance and April 1, 1999
- -------------------------------------- Chief Financial Officer
Brent L. Larson (principal financial officer)
/s/Melvin D. Booth* Director April 1, 1999
- --------------------------------------
Melvin D. Booth
/s/John S. Christie* Director April 1, 1999
- --------------------------------------
John S. Christie
/s/Julius R. Krevans* Chairman, Director April 1, 1999
- --------------------------------------
Julius R. Krevans
/s/Michael P. Moore* Director April 1, 1999
- --------------------------------------
Michael P. Moore
/s/J. Frank Whitley, Jr.* Director April 1, 1999
- --------------------------------------
J. Frank Whitley, Jr.
/s/James F. Zid* Director April 1, 1999
- --------------------------------------
James F. Zid
*By: /s/ David C. Bupp
-------------------------------------------
David C. Bupp, Attorney-in-fact
</TABLE>
37
<PAGE> 38
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------
NEOPROBE CORPORATION
------------------------
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED:
DECEMBER 31, 1998
-----------------------
FINANCIAL STATEMENTS
-------------------------
===============================================================================
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders of
Neoprobe Corporation
We have audited the accompanying consolidated balance sheet of Neoprobe
Corporation and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1996 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Neoprobe
Corporation and Subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1996 and 1997 in conformity with generally accepted accounting principles.
Coopers & Lybrand LLP
Columbus, Ohio
February 20, 1998
F-1
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Neoprobe Corporation:
We have audited the accompanying consolidated balance sheet of Neoprobe
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statement of operations, stockholders' equity and comprehensive
income (loss), and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neoprobe Corporation
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 16 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 16. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG LLP
Columbus, Ohio
March 31, 1999
F-2
<PAGE> 41
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1998
<TABLE>
<CAPTION>
ASSETS 1997 1998
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 9,921,025 $ 3,054,936
Available-for-sale securities 14,672,496 448,563
Accounts receivable 793,376 2,069,633
Inventory 413,024 1,578,912
Prepaid expenses 1,211,598 720,420
Note receivable 1,500,000 --
Other current assets 789,780 147,008
------------ ------------
Total current assets 29,301,299 8,019,472
------------ ------------
Investment in affiliates -- 1,500,000
Property and equipment:
Equipment 9,264,222 3,073,931
Construction in progress 3,757,133 --
------------ ------------
13,021,355 3,073,931
------------ ------------
Less accumulated depreciation and amortization (2,596,459) (1,654,661)
------------ ------------
10,424,896 1,419,270
------------ ------------
Intangible assets 1,715,834 773,863
Other assets 131,375 281,594
------------ ------------
Total assets $ 41,573,404 $ 11,994,199
============ ============
</TABLE>
CONTINUED
F-3
<PAGE> 42
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1998
------------- -------------
<S> <C> <C>
Current liabilities:
Line of credit $ -- $ 1,000,000
Notes payable to finance company 202,615 242,163
Capital lease obligations, current 156,140 99,539
Accounts payable 3,848,172 2,857,717
Accrued liabilities 2,743,293 2,813,321
------------- -------------
Total current liabilities 6,950,220 7,012,740
------------- -------------
Long-term debt 1,813,437 --
Capital lease obligations 255,355 155,816
------------- -------------
Total liabilities 9,019,012 7,168,556
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares
authorized at December 31, 1997 and 1998; none issued
and outstanding (500,000 shares designated as Series A,
$.001 par value, at December 31, 1997 and 1998; none
outstanding) -- --
Common stock; $.001 par value; 50,000,000 shares
authorized; 22,763,430 shares issued and
outstanding at December 31, 1997; 22,887,910
shares issued and outstanding at December 31,1998 22,763 22,888
Additional paid-in capital 120,034,876 120,272,899
Accumulated deficit (87,362,531) (115,395,283)
Accumulated other comprehensive loss (140,716) (74,861)
------------- -------------
Total stockholders' equity 32,554,392 4,825,643
------------- -------------
Total liabilities and stockholders' equity $ 41,573,404 $ 11,994,199
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 43
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 1,171,186 $ 5,127,917 $ 5,832,695
Cost of goods sold 676,773 1,575,699 1,403,951
------------ ------------ ------------
Gross profit 494,413 3,552,218 4,428,744
------------ ------------ ------------
Operating expenses:
Research and development 16,082,761 19,656,804 12,960,208
Marketing and selling 1,531,589 4,306,717 5,267,617
General and administrative 6,221,981 6,853,283 5,284,462
Losses related to subsidiaries in liquidation -- -- 9,384,753
------------ ------------ ------------
Total operating expenses 23,836,331 30,816,804 32,897,040
------------ ------------ ------------
Loss from operations (23,341,918) (27,264,586) (28,468,296)
------------ ------------ ------------
Other income (expenses):
Interest income 2,179,345 2,156,795 598,834
Interest expense (83,436) (61,445) (189,785)
Other 276,866 1,922,708 26,495
------------ ------------ ------------
Total other income 2,372,775 4,018,058 435,544
------------ ------------ ------------
Net loss $(20,969,143) $(23,246,528) $(28,032,752)
============ ============ ============
Net loss per common share
(basic and diluted) $ (1.06) $ (1.02) $ (1.23)
============ ============ ============
Weighted average number of shares
outstanding during the year 19,743,649 22,734,642 22,842,232
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 44
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) TOTAL
--------- --------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 17,334,800 $ 17,335 $ 62,964,787 $(43,146,860) $ 213,387 $ 20,048,649
Exercise of employee stock
options at $2 to $6 per share 132,075 132 553,139 553,271
Exercise of stock warrants at
$3.32 to $12.60 per share 2,904,421 2,905 18,165,986 18,168,891
Issued to 401(k) plan at $3.46 5,426 5 18,792 18,797
Issued to employee in exchange
for services 10,000 10 121,240 121,250
Sale of common stock at $18.50
per share, net of costs 1,750,000 1,750 30,190,777 30,192,527
Issued in exchange for technology
licenses at $16.03 per share 124,805 125 1,999,875 2,000,000
Issued in exchange for note
receivable and development
activities at $20.25 per share 125,000 125 2,531,125 2,531,250
Issued in conversion of
debentures at $5.93 per share 200,000 200 1,185,641 1,185,841
Vesting of compensatory
employee options 1,562,500 1,562,500
Comprehensive income (loss):
Net loss (20,969,143) (20,969,143)
Foreign currency translation
adjustment (60,446) (60,446)
Unrealized loss on
available-for-sale
securities (76,339) (76,339)
------------
Total comprehensive loss (21,105,928)
---------- --------- ------------ -------------- --------- ------------
Balance, December 31, 1996 22,586,527 22,587 119,293,862 (64,116,003) 76,602 55,277,048
Exercise of employee stock
options at $2.50 to $15.75
per share 85,510 85 361,500 361,585
Issued to 401(k) plan at $14.61 1,672 2 24,422 24,424
Exercise of stock warrants at
$3.32 to $6.05 per share 89,721 89 355,092 355,181
Comprehensive income (loss):
Net loss (23,246,528) (23,246,528)
Foreign currency translation (237,887) (237,887)
adjustment
Unrealized gain on available-
for-sale securities 20,569 20,569
------------
Total comprehensive loss (23,463,846)
---------- --------- ------------ -------------- --------- ------------
Balance, December 31, 1997 22,763,430 $22,763 $120,034,876 $ (87,362,531) $(140,716) $ 32,554,392
Exercise of employee stock
options at $2.50 to $3.88 76,587 77 196,221 196,298
per share
Issued to 401(k) plan at $14.45 2,893 3 41,802 41,805
Issuance of restricted stock to 45,000 45 45
officers
Comprehensive income (loss):
Net loss (28,032,752) (28,032,752)
Foreign currency translation
adjustment 56,346 56,346
Unrealized gain on
available-for-sale 9,509 9,509
securities
------------
Total comprehensive loss (27,966,897)
---------- --------- ------------ -------------- --------- ------------
Balance, December 31, 1998 22,887,910 $ 22,888 $120,272,899 $ (115,395,283) $ (74,861) $ 4,825,643
========== ========= ============ ============== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 45
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(20,969,143) $(23,246,528) $(28,032,752)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 628,015 778,663 1,081,676
Amortization of intangible assets 24,608 117,859 43,254
Provision for bad debts -- 130,660 134,249
Loss on disposal and abandonment of assets 10,199 664,068 1,266,153
Non-cash losses related to subsidiaries in liquidation -- -- 6,443,432
Non-cash expenditures for research and
development 500,000 -- --
Compensation expense under restricted stock
and stock option plans 1,683,750 -- --
Change in operating assets and liabilities:
Accounts receivable (1,002,799) 315,406 (1,410,759)
Inventory 248,734 (199,335) (1,165,258)
Prepaid expenses and other (566,291) 465,764 1,144,128
Accounts payable 905,883 1,404,095 (847,970)
Accrued liabilities 1,996,641 (133,131) (105,694)
Deferred revenue 2,000,000 (2,000,000) --
------------ ------------ ------------
Net cash used in operating activities (14,540,403) (21,702,479) (21,449,541)
Cash flows from investing activities:
Purchases of available-for-sale securities (50,061,144) (13,489,774) (1,738,512)
Proceeds from sales of available-for-sale securities 27,607,495 1,884,610 4,955,601
Maturities of available-for-sale securities 9,982,000 16,739,201 11,050,000
Purchases of property and equipment (3,616,297) (4,689,681) (3,428,811)
Patent costs (126,287) (197,873) (239,400)
------------ ------------ ------------
Net cash (used in) provided by investing activities (16,214,233) 246,483 10,598,878
Cash flows from financing activities:
Proceeds from issuance of common stock, net 50,117,201 716,766 196,343
Proceeds from line of credit -- -- 1,275,750
Payments under line of credit -- -- (275,750)
Proceeds from notes payable 180,242 -- --
Payment of notes payable (153,638) (177,039) (228,892)
Payments under capital leases (241,390) (125,202) (156,167)
Proceeds from long-term debt 1,000,687 812,750 3,129,499
------------ ------------ ------------
Net cash provided by financing activities 50,903,102 1,227,275 3,940,783
Effect of exchange rate changes on cash (13,027) (18,666) 43,791
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 20,135,439 (20,247,387) (6,866,089)
Cash and cash equivalents, beginning of year 10,032,973 30,168,412 9,921,025
------------ ------------ ------------
Cash and cash equivalents, end of year $ 30,168,412 $ 9,921,025 $ 3,054,936
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. ORGANIZATION AND NATURE OF OPERATIONS: Neoprobe Corporation ("the
Company"), a Delaware corporation, is engaged in the development and
commercialization of gamma guided surgery products for the diagnosis
and treatment of cancers and other diseases. Prior to 1998, the Company
had been considered to be a development stage enterprise. However, due
to changes in the Company's business plan that occurred during 1998,
the Company's strategic direction has changed to focus primarily on
gamma guided surgery products such as the Company's line of hand-held
gamma detection instruments. Management of the Company believes that
the principal operations of the restructured Company commenced in 1998
as evidenced by a second year of substantial revenue from the sale of
hand-held gamma detection instruments. Therefore, management believes
the Company should no longer be considered a development stage
enterprise.
As a result of the changes in the Company's strategic direction, the
Company recorded approximately $1.2 million in severance and other
employee-related exit costs, excluding severance costs of $314,000
related to subsidiaries in liquidation. At December 31, 1998, the
Company has accrued approximately $242,000 related to severance costs
of terminated employees.
b. FINANCIAL STATEMENT PRESENTATION:
(1) Principles of consolidation: The consolidated financial statements
of the Company include the accounts of the Company and its
majority-owned subsidiaries (see Note 9). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(2) Adoption of liquidation basis of accounting: During 1998, the
Company adopted the liquidation basis of accounting for its two
international subsidiaries. Accordingly, assets of these
subsidiaries are stated at net realizable value, and liabilities
are stated at amounts expected to settle obligations due.
c. FOREIGN CURRENCY TRANSLATION: In accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, Foreign Currency Translation,
assets and liabilities denominated in foreign currencies are translated
at current exchange rates in effect at the balance sheet dates, and
revenues and expenses are translated at the average monthly exchange
rate. The differences resulting from such translations are included in
other comprehensive income (loss).
d. FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and
assumptions were used to estimate the fair value of each class of
financial instruments:
(1) Cash and cash equivalents, accounts receivable, accounts payable,
and accrued liabilities: The carrying amounts approximate fair
value because of the short maturity of these instruments.
(2) Available-for-sale securities: The fair values of debt securities
and equity investments are based on quoted market prices at the
balance sheet date.
(3) Line of credit and notes payable to finance company: The fair
value of the Company's debt is estimated by discounting the future
cash flows of each instrument at rates currently offered to the
Company for similar debt instruments of comparable maturities by
banks or finance companies. At December 31, 1998, the carrying
value of these instruments approximates fair value.
e. CASH AND CASH EQUIVALENTS: Cash equivalents of $7,227,807 and $20,691
at December 31, 1997 and 1998, respectively, consist of corporate debt
securities and mortgage-backed U.S. government securities with a term
of less than three months. For purposes of the statements of cash
flows, cash and cash equivalents consist of demand deposits, money
market funds, highly liquid debt instruments and certificates of
deposit with original maturities of three months or less. At December
31, 1997 and 1998, the use of $377,652 and $993,000, respectively, of
cash and cash equivalents was restricted under the terms of the
Company's debt agreement financing the construction of Neoprobe
(Israel) Ltd. At December 31, 1998, $1 million was pledged as security
related to the Company's line of credit.
F-8
<PAGE> 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
f. INVESTMENTS:
(1) Investments in affiliated companies with no readily determinable
fair value of up to 20% are carried on the cost basis, and
investments greater than 20%, where management has determined the
Company does not exercise control, are carried on the equity
basis.
(2) Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of accumulated
other comprehensive income until realized. Realized gains and
losses from the sale of available-for-sale securities are
determined on a specific identification basis.
A decline in the market value of any available-for-sale security
below cost that is deemed to be other than temporary, results in a
reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is
established. Premiums and discounts are amortized or accreted over
the life of the related available-for-sale security as an
adjustment to yield using the effective interest method. Dividend
and interest income are recognized when earned.
Information related to amortized cost and fair value of
available-for-sale securities, utilizing the specific
identification method, at December 31, 1997 and 1998, is provided
below:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED
1997 COST GAINS(LOSSES) FAIR VALUE
----------------------------------------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
Mortgage-backed U.S. government securities $ 993,214 $(6,508) $ 986,706
Corporate debt securities 13,688,572 (2,782) 13,685,790
----------- ------- -----------
$14,681,786 $(9,290) $14,672,496
=========== ======= ===========
1998
-----------------------------------------------
Mortgage-backed U.S. government securities $ 448,344 $ 219 $ 448,563
----------- ------- -----------
$ 448,344 $ 219 $ 448,563
=========== ======= ===========
</TABLE>
The fair value of available-for-sale debt securities at December
31, 1997 and 1998, by contractual maturity, are shown below.
Available-for-sale securities are classified as current based on
the Company's intent to use them to fund short-term working
capital needs.
<TABLE>
<CAPTION>
AMORTIZED
1997 COST FAIR VALUE
---------------------------------------- ------------------- ------------------
<S> <C> <C>
Due one year or less $11,278,897 $11,282,535
Due after one year through five years 3,402,889 3,389,961
----------- -----------
$14,681,786 $14,672,496
=========== ===========
1998
----------------------------------------
Due one year or less $ 18,870 $ 18,816
Due after one year through five years 429,474 429,747
----------- -----------
$ 448,344 $ 448,563
=========== ===========
</TABLE>
F-9
<PAGE> 48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
g. INVENTORY: The components of inventory at December 31, 1997 and 1998,
are as follows:
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Materials and component parts $36,890 $277,505
Work in process 145,234 -
Finished goods 230,900 1,301,407
-------- ----------
$413,024 $1,578,912
======== ==========
</TABLE>
All components of inventory are valued at the lower of cost (first-in,
first-out) or market.
h. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Equipment under capital leases is stated at the present value of
minimum lease payments. Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable
assets ranging from 3 to 20 years, and includes amortization related to
equipment under capital leases. Maintenance and repairs are charged to
expense as incurred, while renewals and improvements are capitalized.
Equipment includes $518,507 and $393,869 of equipment under capital
leases and accumulated amortization of $119,432 and $153,165 at
December 31, 1997 and 1998, respectively.
i. INTANGIBLE ASSETS: Intangible assets consist primarily of the cost of
patents and acquired technology licenses. Patent costs are amortized
using the straight-line method over the remaining lives of the patents
of up to 17 to 20 years. Patent application costs are deferred pending
the outcome of patent applications. Costs associated with unsuccessful
patent applications and abandoned intellectual property are expensed
when determined to have no recoverable value. The Company evaluates the
potential alternative uses of intangible assets, as well as the
recoverability of the carrying values of intangible assets on a
recurring basis.
The components of intangible assets at December 31, 1997 and 1998 are
as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Patents $ 813,826 $ 871,944
Acquired technology licenses 1,000,000 -
--------- ---------
1,813,826 871,944
Accumulated amortization (97,992) (98,081)
----------
=========
$1,715,834 $ 773,863
========== =========
</TABLE>
During 1998, the Company recorded $148,000 in general and
administrative expense related to patents which will no longer be
supported based on changes in the Company's business plan. The Company
also recorded a $1 million impairment charge in 1998 related to
technology licensed from The Dow Chemical Company (see Note 11).
j. REVENUE RECOGNITION AND PRODUCT WARRANTY: The Company derives revenues
primarily from sales of its hand-held gamma detection instruments.
However, revenues in prior years also included revenues from sales of
blood group serology products. The Company recognizes sales revenue
when the product is shipped. The Company warrants its products against
defects in design, materials, and workmanship for a period of one year.
The Company's provision for warranty expenses is adjusted periodically
to reflect actual experience.
k. RESEARCH AND DEVELOPMENT COSTS: All costs related to research and
development are expensed as incurred.
l. INCOME TAXES: Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities, and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or
F-10
<PAGE> 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
m. STOCK OPTION PLANS: The Company applies the intrinsic value-based
method of accounting prescribed by Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its stock options. As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise
price.
n. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
o. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF: The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. This Statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount of fair value less costs to sell.
p. COMPREHENSIVE INCOME (LOSS): On January 1, 1998, the Company adopted
SFAS No. 130, Reporting Comprehensive Income. This Statement
establishes standards for reporting and display of comprehensive income
in a full set of general purpose financial statements. Comprehensive
income consists of net income (loss), net unrealized gains (losses) on
securities and foreign currency translation adjustments, and is
presented in the consolidated statements of stockholders' equity and
accumulated other comprehensive income (loss). The Statement requires
only additional disclosures in the consolidated financial statements;
it does not affect the Company's financial position or results of
operations. Due to the Company's net operating loss position, there are
no income tax effects on comprehensive income components for any of the
years presented. Prior year financial statements have been reclassified
to conform to the requirements of SFAS No. 130.
The accumulated balances for each classification of accumulated other
comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY GAINS OTHER
TRANSLATION (LOSSES) ON COMPREHENSIVE
ADJUSTMENT SECURITIES INCOME (LOSS)
--------- --------- ---------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 166,907 $ 46,480 $ 213,387
Change during 1996 (60,446) (76,339) (136,785)
--------- -------- ---------
Balance, December 31, 1996 106,461 (29,859) 76,602
Change during 1997 (237,887) 20,569 (217,318)
--------- -------- ---------
Balance, December 31, 1997 (131,426) (9,290) (140,716)
Change during 1998 56,346 9,509 65,855
--------- -------- ---------
Balance, December 31, 1998 $ (75,080) $ 219 $ (74,861)
========= ======== =========
</TABLE>
Q. NET LOSS PER COMMON SHARE: During 1997, the Company adopted SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for
computing and presenting earnings per share ("EPS") and replaced the
presentation of primary EPS with a presentation of basic EPS and
diluted EPS. There are no differences in basic and diluted EPS for the
Company related to any of the years presented. The net loss per common
share
F-11
<PAGE> 50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for all periods presented excludes the number of common shares issuable
on exercise of outstanding stock options and warrants into the
Company's Common Stock since such inclusion would be antidilutive.
r. SEGMENT REPORTING: On December 31, 1998, the Company adopted SFAS No.
131, Disclosures about Segments of an Enterprise and Related
Information. This Statement establishes standards for the way that
public business enterprises report information about operating segments
in annual financial statements issued to stockholders. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. This Statement
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, but retains the requirement to report information about
major customers. The Company has reclassified prior year information to
conform to this revised segment reporting.
s. RECLASSIFICATIONS: Certain prior years' amounts have been reclassified
to conform with the 1998 presentation.
2. ACCOUNTS RECEIVABLE:
Accounts receivable at December 31, 1997 and 1998, net of allowance for
doubtful accounts of $130,660 and $77,000, respectively, consist of the
following:
<TABLE>
<CAPTION>
1997 1998
-------- -----------
<S> <C> <C>
Trade $769,578 $1,611,247
Other 23,798 458,386
-------- ----------
$793,376 $2,069,633
======== ==========
</TABLE>
The activity in the allowance for doubtful accounts for the years ended
December 31, 1997 and 1998 follows:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Allowance for doubtful accounts at beginning of year $ - $ 130,660
Provision for bad debts 130,660 134,249
Writeoffs charged against the allowance - (187,909)
Recoveries of amounts previously charged off - -
-------- ---------
Allowance for doubtful accounts at end of year $130,660 $ 77,000
======== =========
</TABLE>
3. INVESTMENT IN AFFILIATES:
Included in investment in affiliate at December 31, 1998, is an investment
in XTL Biopharmaceuticals Ltd. ("XTL"). The investment resulted from the
conversion of a note receivable from XTL, which was held by the Company
related to an Investment Research and Development Agreement (see Note 11).
The note receivable was due to mature on February 13, 1998, and bore
interest at 5% payable annually. On January 30, 1998, the Company exercised
its option to convert the note receivable into 443,690 shares of Class A
Common Stock of XTL. The Company has accounted for its investment in XTL on
the cost method. There is currently no publicly quoted market value for
shares of XTL; however, management believes, based on a recently completed
private placement, that the market value of its investment in XTL
approximates book value. The Company has approximately a 6% interest in XTL
as of December 31, 1998, on an "as if converted" basis. The Company also
has investment interests in two other entities which are carried at zero at
December 31, 1998.
F-12
<PAGE> 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Royalties due under research and
development agreement $ 171,570 $ 319,693
Compensation 578,683 547,993
Inventory purchases 204,666 38,860
Accrued loan security (Note 5(b)) - 993,000
Contracted services and other 1,788,374 913,775
---------- ----------
$2,743,293 $2,813,321
========== ==========
</TABLE>
Accrued compensation at December 31, 1998, includes $242,351 of separation
payments due to former employees, including those of subsidiaries in
liquidation.
5. DEBT:
a. LINE OF CREDIT: In September 1998, the Company renegotiated the terms
of its $3 million revolving line of credit arrangement with a bank. The
new line of credit expires on August 31, 1999. The maximum eligible
borrowing limit under the new line was decreased to $1 million and is
secured by $1 million in pledged cash and investments of the Company.
Interest on the line of credit is based on the prime rate or LIBOR, as
elected by the Company. At December 31, 1998, the interest rate was
7.3%, and $1 million was outstanding under the line of credit.
b. LONG-TERM DEBT: As of December 31, 1998, the Company's 95%-owned
subsidiary, Neoprobe (Israel) Ltd. ("Neoprobe Israel"), had outstanding
debt to a bank of $4.9 million. The funds were drawn pursuant to an
investment program approved by the State of Israel's Finance Committee
to construct a radiolabeling facility near Dimona, Israel. Under the
approved investment program, Neoprobe Israel was entitled to receive
government grants and government guarantees of loans to finance the
construction and operation of the facility up to a combined total
amount of $9.9 million. Neoprobe Israel is entitled to receive grants
based on a percentage of its investment and operating costs, and a
government guarantee of 75% to 85% of the principal balance of bank
loans taken to build and operate the facility. The loan portion of the
investment program expired in September 1998; however, the Company
received loan proceeds related to the majority of eligible capital
costs incurred prior to the expiration of the loan program. During
1998, the Company successfully negotiated an extension of the grant
portion of the program for an additional year. Through December 31,
1998, Neoprobe Israel has received $1.3 million in the form of grants
under the approved investment program.
Amounts received as loans bear interest at the LIBOR rate plus a
specified percentage based on the exchange rate differential between
the New Israeli Shekel and the U.S. dollar on the date of the loan
draw, or between 8.2% and 8.45% at December 31, 1998. Amounts received
under the agreement are secured by property obtained through the use of
proceeds. The loans with the bank are guaranteed by the State of
Israel's Investment Centre. The Company has also guaranteed a portion
of the loan based on a percentage of the loan drawn. The Company's
guarantee is fully secured by $993,000 in cash deposited in an account
with the bank for which the bank has the right of set-off.
In December 1998, Company initiated actions to liquidate Neoprobe
Israel. As a result, the Company has adopted the liquidation basis of
accounting with respect to Neoprobe Israel as of December 31, 1998 (see
also Note 9). Under the liquidation basis of accounting, assets are
stated at their net realizable value, and liabilities are stated at
amounts expected to settle obligations due. If a buyer for the facility
cannot be found on a timely basis, the Company believes Neoprobe Israel
may be required to relinquish ownership of the radiolabeling facility
in lieu of a cash settlement of the obligation to the bank. The
Company's consolidated balance sheet, therefore, does not
F-13
<PAGE> 52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
reflect any debt outstanding to the bank at December 31, 1998. In
addition, the Company believes it may be required to relinquish funds
currently deposited as security for the loan and has, therefore,
recorded an accrued liability at December 31, 1998, equal to the amount
of cash deposited as security.
6. INCOME TAXES:
As of December 31, 1998, the Company's net deferred tax assets in the
U.S. were approximately $45.3 million, related principally to net
operating loss carryforwards of approximately $95.5 million available
to offset future taxable income, if any, through 2018 and tax credit
carryforwards of approximately $3.3 million (principally research and
development) available to reduce future income tax liability after
utilization of tax loss carryforwards, if any, through 2018. Due to the
uncertainty surrounding the realization of these favorable tax
attributes in future tax returns, all of the net deferred tax assets
have been fully offset by a valuation allowance.
Under Sections 382 and 383 of the Internal Revenue Code (IRC) of 1986,
as amended, the utilization of U.S. net operating loss and tax credit
carryforwards may be limited under the change in stock ownership rules
of the IRC. As a result of ownership changes as defined by Sections 382
and 383, which have occurred at various points in the Company's
history, management believes utilization of the Company's net operating
loss carryforwards and tax credit carryforwards may be limited.
In general, it has been the intention of the Company to reinvest the
earnings of non-U.S. subsidiaries in those operations. At December 31,
1998, the Company's international subsidiaries have net operating loss
carryforwards of approximately $9.1 million available to offset future
statutory income in those jurisdictions. However, as both subsidiaries
are currently in loss positions, and as the Company is in the process
of liquidating both foreign subsidiaries, no amounts have been
estimated to be remitted; accordingly, no amounts have been provided
for income tax consequences related to international subsidiaries. Due
to the liquidation status of these subsidiaries, it is unlikely the
Company will realize any benefit related to the net operating loss
carryforwards within the foreign jurisdictions. However, the Company
may be able to realize some benefit from these foreign losses under the
U.S. IRC.
7. EQUITY:
a. COMMON STOCK: The Company's research and development activities and
operating costs have been funded principally with cash generated from
the issuance of Common Stock. In April 1996, the Company completed the
sale of 1,750,000 shares of Common Stock at a price of $18.50 per share
in a secondary offering. Gross proceeds from this offering were $32.4
million, and proceeds net of underwriting discounts were $30.5 million.
In November 1992 and December 1993, the Company issued a total of
2,330,000 Class E Redeemable Common Stock Purchase Warrants ("Class E
Warrants"). The Class E Warrants were exercisable over a three-year
period beginning November 10, 1993 and expiring on November 12, 1996.
During 1996, the Company received proceeds from the exercise of Class E
Warrants of approximately $15.0 million.
During 1996, 1997, and 1998, cash generated from public offerings and
private placements of Common Stock is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- -------- ---------
<S> <C> <C> <C>
Public offerings, including exercise of warrants $47,988,930 $361,585 $ -
Private placements and exercise of options 2,128,271 355,181 196,343
----------- -------- --------
$50,117,201 $716,766 $196,343
=========== ======== ========
</TABLE>
F-14
<PAGE> 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
b. STOCK OPTIONS: At December 31, 1998, the Company has two stock-based
compensation plans. Had compensation cost for the Company's two
stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans, consistent with SFAS
Statement No. 123, the Company's net loss and net loss per share would
have been increased to the pro forma amounts indicated below:
<TABLE>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net loss As reported $(20,969,143) $(23,246,528) $(28,032,752)
Pro forma $(22,017,227) $(25,273,241) $(30,843,828)
Net loss per common As reported $ (1.06) $ (1.02) $ (1.23)
share (basic and diluted)
Pro Forma $ (1.12) $ (1.11) $ (1.35)
</TABLE>
Under the Amended and Restated Stock Option and Restricted Stock
Purchase Plan (the "Amended Plan"), and under the 1996 Stock Incentive
Plan (the "1996 Plan"), the Company may grant incentive stock options,
nonqualified stock options, and restricted stock awards to full-time
employees, and nonqualified stock options and restricted awards may be
granted to consultants and agents of the Company. Total shares
authorized under each plan are 2 million shares and 1.5 million shares,
respectively. Under both plans, the exercise price of each option is
greater than or equal to the closing market price of the Company's
Common Stock on the day prior to the date of the grant.
Options granted under the Amended Plan and the 1996 Plan generally vest
on either a monthly basis over two to four years or on an annual basis
over three years. Outstanding options under the plans, if not
exercised, generally expire ten years from their date of grant or 90
days from the date of an optionee's separation from employment with the
Company.
The fair value of each option grant was estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions for 1996, 1997, and 1998, respectively: average risk-free
interest rates of 5.7%, 6.4% and 5.0%; expected average lives of three
to four years for each of the years presented; no dividend rate for any
year; and volatility of 181% for 1996, 72% for 1997, and 103% for 1998.
A summary of the status of stock options under the Company's stock
option plans as of December 31, 1996, 1997, and 1998, and changes
during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,723,543 $ 2.93 2,002,138 $ 5.60 2,194,103 $7.81
Granted 457,700 $15.38 427,900 $13.50 869,791 3.88
Forfeited (47,030) $ 6.92 (150,425) $13.90 (1,527,862) 8.22
Exercised (132,075) $ 4.19 (85,510) $ 4.25 (76,587) 2.56
--------- --------- ----------
Outstanding at
end of year 2,002,138 $ 5.60 2,194,103 $ 7.81 1,459,445 $5.31
========= ========= =========
Options exercisable
at end of year 1,265,893 1,369,557 912,546
========= ========= =======
</TABLE>
F-15
<PAGE> 54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On September 28, 1998, the Company repriced 367,000 outstanding options
held by non-officer employees of the Company. In exchange for
surrendering outstanding options with exercise prices of $5.06 to
$17.75, these employees were granted 183,440 new options with an
exercise price of $1.50 per share, and the vesting term of the new
options was extended by an average of one year from the original
vesting term of the surrendered options. No expense was recorded as a
result of this repricing. Included in outstanding options as of
December 31, 1998, are 100,000 options exercisable at an exercise price
of $2.50 per share which vest on the meeting of certain Company
achievements.
The following table summarizes information about the Company's stock
options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE AT DECEMBER EXERCISE
PRICES 1998 LIFE PRICE 31, 1998 PRICE
-------------------- ----------------- -------------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
$1.50 - $2.50 563,651 7 Years $ 1.91 234,482 $ 2.05
$3.00 - $5.63 298,600 6 Years $ 4.30 150,000 $ 3.15
$6.00 - $6.00 393,160 4 Years $ 6.00 393,160 $ 6.00
$13.38 - $17.44 204,034 8 Years $14.85 134,904 $15.20
--------- -------
$1.50 - $17.44 1,459,445 6 Years $ 5.31 912,546 $ 5.88
========= =======
</TABLE>
c. RESTRICTED STOCK: During 1998, the Company granted 145,000 shares of
restricted Common Stock to officers of the Company under the Amended
Plan. However, of the 1998 shares granted, 20,000 shares were forfeited
subsequent to being granted but prior to issuance, and 80,000 shares
were not issued by the Company's transfer agent until 1999.
At December 31, 1998, the Company has 125,000 restricted shares issued
and outstanding under the Amended Plan. However, 50,000 of the 125,000
outstanding restricted shares were forfeited effective December 31,
1998, and are pending cancellation by the transfer agent.
All of the restricted shares granted vest on a change of control of the
Company as defined in the specific grant agreements. As a result, the
Company has not recorded any deferred compensation due to the inability
to assess the probability of the vesting event. Of the shares issued
and outstanding, 75,000 also vest under certain conditions of
termination as defined in an officer's employment agreement with the
Company (see Note 11 (e)).
d. STOCK WARRANTS: At December 31, 1998, there are approximately 67,922
warrants outstanding to purchase Common Stock of the Company. The
warrants are exercisable at prices ranging from $3.00 to $17.92 per
share with a weighted average exercise price per share of $6.34.
Approximately 45,000 of the warrants expired on February 28, 1999; the
remaining warrants expire on various dates from June 1999 through
December 2000.
e. COMMON STOCK RESERVED: Shares of authorized Common Stock have been
reserved for the exercise of all options and warrants outstanding.
F-16
<PAGE> 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. SHAREHOLDER RIGHTS PLAN:
During July 1995, the Company's Board of Directors adopted a Shareholder
Rights Plan. Under the plan, one "Right" is to be distributed for each
share of Common Stock held by shareholders on the close of business on
August 28, 1995. The Rights are exercisable only if a person and its
affiliate commences a tender offer or exchange offer for 15% or more of the
Company's Common Stock, or if there is a public announcement that a person
and its affiliate has acquired beneficial ownership of 15% or more of the
Common Stock, and if the Company does not redeem the Rights during the
specified redemption period. Initially, each Right, upon becoming
exercisable, would entitle the holder to purchase from the Company one unit
consisting of 1/100th of a share of Series A Junior Participating Preferred
Stock at an exercise price of $35 (which is subject to adjustment). Once
the Rights become exercisable, if any person, including its affiliate,
acquires 15% or more of the Common Stock of the Company, each Right other
than the Rights held by the acquiring person and its affiliate becomes a
right to acquire Common Stock having a value equal to two times the
exercise price of the Right. The Company is entitled to redeem the Rights
for $0.01 per Right at any time prior to the expiration of the redemption
period. The Shareholder Rights Plan and the Rights will expire on August
28, 2005. The Board of Directors may amend the Shareholder Rights Plan,
from time to time, as considered necessary (see Note 17).
9. SEGMENTS AND SUBSIDIARIES INFORMATION:
Prior to the 1998 changes in the Company's business plan, the Company's
business was operated based on product development initiatives started
under the Company's prior business plan. These strategic initiatives
originally included development and commercialization of: hand-held gamma
detection instruments currently used primarily in the application of
Intraoperative Lymphatic Mapping ("ILM"), diagnostic radiopharmaceutical
products to be used in the Company's proprietary RIGS process, and
Activated Cellular Therapy ("ACT"). The Company's business plan as of
December 31, 1998 focuses primarily on the hand-held gamma detection
instruments while efforts are carried out to find partners or licensing
parties to fund RIGS and ACT research and development.
The Company's United States operations included activities for 1998 and
prior years that benefited all three strategic initiatives. The suspended
RIGS initiative included the operations of the Company's two subsidiaries,
Neoprobe Europe AB ("Neoprobe Europe") and Neoprobe Israel. Neoprobe Europe
was acquired in 1993 primarily to perform a portion of the manufacturing
process of the monoclonal antibody used in the first RIGS product to be
used for colorectal cancer, RIGScan CR49. Neoprobe Israel was founded to
radiolabel RIGScan CR49. Neoprobe Europe and Neoprobe Israel also both
performed limited research and development activities related to the
Company's RIGS process on behalf of the U.S. parent company. Under SFAS No.
131, neither subsidiary is considered a segment. Both Neoprobe Europe and
Neoprobe Israel are in liquidation at December 31, 1998. The results of the
operations of Neoprobe Europe and Neoprobe Israel for 1998, as well as the
effects of adjustment of their related assets in conformity with the
liquidation basis of accounting, is presented as losses relating to
subsidiaries in liquidation in the consolidated statements of operations.
Due to changes in the potential production process for RIGScan CR49, the
Company determined during the second quarter of 1998, that Neoprobe Europe,
the Company's biologics manufacturing and purification facility located in
Lund, Sweden, was no longer critical to the manufacturing process, and that
research and development activities being carried on at the facility could
be performed more efficiently elsewhere. As a result, the Company took
action in the second quarter to initiate the sale of Neoprobe Europe. As of
June 30, 1998, activities regarding the potential sale were in the
preliminary stages, and management was unable to estimate the effect on the
Company's financial position. However, management did not believe the $2.5
million book value of the net assets of Neoprobe Europe to be impaired at
that time. During October 1998, the Company reached an agreement to sell
substantially all of the assets of Neoprobe Europe to a Swedish company. In
exchange for the assets, the Swedish company agreed to pay the Company
$125,000 and assume certain contractual obligations of Neoprobe Europe,
such as the lease commitment. In connection with this agreement, the
Company recorded a provision of approximately $2.0 million during the third
quarter of 1998, principally to write down the remaining assets of Neoprobe
Europe to their estimated realizable value. At December 31, 1998, the
Company has adopted the liquidation basis of accounting for Neoprobe
Europe. Accordingly, the consolidated balance sheet includes approximately
$150,000 in current assets of Neoprobe
F-17
<PAGE> 56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Europe at their net realizable value, and $70,000 in liabilities at the
amounts expected to settle the obligations due. Included in losses related
to subsidiaries in liquidation for 1998 is $1.7 million related to
impairment of assets, $235,000 related to severance and exit costs, and
$1.2 million of losses from operations incurred prior to the decision to
liquidate.
Neoprobe Israel was founded by the Company and Rotem Industries Ltd.
("Rotem") in 1994 to construct and operate a radiolabeling facility near
Dimona, Israel. Rotem currently has a 5% equity interest in Neoprobe Israel
and has the right to acquire an additional 4% under certain conditions
related to the completion of the facility. Based on the status of the
Company's marketing applications in the U.S. and Europe, and the Company's
inability to attract a development partner for its RIGS products, the
Company decided during the fourth quarter of 1998 to suspend construction
and validation activities at Neoprobe Israel. Following suspension of RIGS
development activities at Neoprobe Israel and unsuccessful attempts to sell
the facility, the Company initiated actions during the fourth quarter of
1998 to liquidate Neoprobe Israel. The Company has, therefore, adopted the
liquidation basis of accounting with respect to Neoprobe Israel as of
December 31, 1998. The Company has written down the value of the fixed
assets of the facility and the related debt to the net amount of zero as
the assets may represent settlement of the debt (see Note 5 (b)).
Accordingly, the consolidated balance sheet includes approximately $555,000
in current assets of Neoprobe Israel at their net realizable value, and
$876,000 in liabilities at the amounts expected to settle the obligations
due. Included in losses related to subsidiaries in liquidation for 1998 is
$5.1 million related to the primarily non-cash adjustment of assets and
liabilities to their net realizable value, $79,000 related to severance and
other exit costs, and $1.0 million related to losses from operations
incurred prior to the decision to liquidate.
The information in the following table is derived directly from the segments'
internal financial reporting used for corporate management purposes. The
expenses attributable to corporate activity, including amortization and
interest, and other general and administrative costs are not allocated to the
operating segments.
<TABLE>
<CAPTION>
($ AMOUNTS IN THOUSANDS)
1996 RIGS ILM ACT UNALLOCATED TOTAL
--------------------------------------------- -------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue
United States customers $ - $ 725 $ - $ - $ 725
International customers - 55 - 391 446
Research and development expenses (14,216) (1,783) (84) - (16,083)
Marketing and selling expenses - (1,532) - - (1,532)
General and administrative expenses - - - (6,222) (6,222)
Other income - - - 2,373 2,373
Total assets, net of depreciation and
amortization:
United States 351 1,234 - 56,738 58,323
Neoprobe Europe 2,072 - - - 2,072
Neoprobe Israel 3,477 - - - 3,477
Capital expenditures 3,616 - - - 3,616
</TABLE>
F-18
<PAGE> 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
($ AMOUNTS IN THOUSANDS)
1997 RIGS ILM ACT UNALLOCATED TOTAL
---------------------------------------------- -------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue
United States customers $ - $ 4,677 $ - $ - $ 4,677
International customers - 386 - 65 451
Research and development expenses (12,814) (4,933) (1,910) - (19,657)
Marketing and selling expenses - (4,307) - - (4,307)
General and administrative expenses - - - (6,853) (6,853)
Other income - - - 4,018 4,018
Total assets, net of depreciation and
amortization:
United States 182 1,248 84 30,502 32,016
Neoprobe Europe 1,631 - - - 1,631
Neoprobe Israel 7,926 - - - 7,926
Capital expenditures 4,504 102 84 - 4,690
1998
----------------------------------------------
Revenue
United States customers $ - $ 5,333 $ - $ - $ 5,333
International customers - 430 - 70 500
Research and development expenses (7,113) (3,380) (1,467) (1,000) (12,960)
Marketing and selling expenses - (5,268) - - (5,268)
General and administrative expenses - - - (5,284) (5,284)
Losses related to subsidiaries in liquidation (9,385) - - - (9,385)
Other income - - - 436 436
Total assets, net of depreciation and
amortization:
United States 187 4,839 - 6,083 11,109
Neoprobe Europe 152 - - - 152
Neoprobe Israel 555 - - - 555
Capital expenditures 2,851 578 - - 3,429
</TABLE>
Neoprobe Europe recorded intrasegment revenue for RIGS-related research
performed on behalf of the U.S. parent company of $735,000, $2.7 million,
and $1.2 million in 1996, 1997, and 1998, respectively.
For the year ended December 31, 1996, approximately $328,000 (28%) of net
sales were concentrated between two customers. These sales related to sales
of blood serology products by Neoprobe Europe. The Company discontinued the
sale of blood serology products during 1997. No individual customer
constituted over 10% of net sales in either 1997 or 1998.
10. RELATED-PARTY TRANSACTIONS:
A partner of a law firm which provides various legal services to the
Company, including patent and trademark filings and prosecuting patent and
trademark applications, is a former director of the Company. The partner's
officer and director affiliations ended in May 1997. Costs incurred related
to services performed and patent maintenance fees paid by this firm
approximated $201,000 and $302,000 for the years ended December 31, 1996
and 1997, respectively. The Company owed this law firm approximately
$21,800 at December 31, 1997.
F-19
<PAGE> 58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. AGREEMENTS:
a. SUPPLY AGREEMENTS: During 1997, the Company entered into a supply
agreement with eV Products ("eV"), a division of II-VI Incorporated,
for the supply of certain crystals and associated electronics to be
used in the manufacture of the Company's proprietary line of hand-held
gamma detection instruments. The original term of the agreement expires
on December 31, 2002, but may be automatically extended for an
additional three years. The agreement calls for the Company to purchase
minimum quantities of crystals used by the Company. The Company expects
to purchase a minimum of $500,000 in crystals from eV in 1999. eV is
not the only potential supplier of such crystals; however, any
prolonged interruption from this source could restrict the availability
of the Company's probe products, which would affect operating results
adversely.
b. MARKETING AGREEMENTS: In September 1996, the Company executed a License
and Distributorship Agreement ("Agreement") with the United States
Surgical Corporation ("USSC"). Effective October 17, 1997, the Company
and USSC agreed to terminate the Agreement, as amended. In connection
with the termination, after receipt of payment, the Company agreed to
pay USSC net commissions on orders received prior to the effective date
of the termination and to continue to warranty and service devices sold
under the terms of the Agreement. The parties have also agreed to
discharge and release the other from all remaining claims and financial
obligations relating to the Agreement, including license fees. The
Company had also received $2 million from USSC on execution of the
Agreement in 1996 and recognized this amount as income in the fourth
quarter of 1997 concurrent with the termination of the Agreement.
In April 1998, the Company executed a non-exclusive Sales and Marketing
Agreement (the "Agreement") with Ethicon Endo-Surgery, Inc. ("EES"), a
Johnson & Johnson company, to market and promote the Neoprobe(R) 1500
Portable Radioisotope Detector and its 14mm and 19mm reusable probes
for gamma guided lymphatic mapping and minimally invasive surgery in
the United States. During October 1998, the Agreement with EES was
amended to cover marketing and promotion of the aforementioned products
in Europe. During the initial one-year term of the Agreement, EES
agreed to promote and sell the aforementioned products and train
physicians in the use of the Company's devices. In exchange for
promoting and selling the device products, the Company agreed to pay
EES commissions based on qualifying net sales of the aforementioned
products. At December 31, 1998, the Company owed EES $142,000 under the
terms of the Agreement (see Note 17(b)).
c. RESEARCH AND DEVELOPMENT: Under a research and development agreement
between the Company, The Ohio State University, and the Department of
Development of the State of Ohio, the Company must pay the State of
Ohio periodic royalties calculated as a percentage of net sales of
products utilizing the results of the sponsored research, a sharing of
proceeds received from the sale of technology, and a portion of the
royalties collected from any license the Company may grant. The Company
has an option to terminate its royalty obligation following completion
of the research period by making a termination payment to the State of
Ohio.
d. LICENSE AND TECHNOLOGY AGREEMENTS: In February 1996, the Company and
XTL Biopharmaceuticals Ltd. ("XTL") executed a series of agreements,
including an Investment Agreement and a Research and Development
Agreement whereby XTL will perform specific research activities using
XTL's proprietary technology for the development of future products for
the Company. Under the terms of the agreement, the Company issued
125,000 shares of Common Stock to XTL in 1996 in exchange for a
convertible note receivable, a warrant to purchase stock of XTL, and
approximately $1 million of product development services. The Company
converted the note receivable in 1998 (see Note 3). The warrants
expired in February 1999. The Company recorded research and development
expenses of $405,000 and $595,000 during 1997 and 1998, respectively,
related to the usage of the product development services.
F-20
<PAGE> 59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In March 1996, the Company executed a Subscription and Option Agreement
with Cira Technologies, Inc. ("Cira"), under which the Company received
a 10% equity interest in Cira and an option to increase its interest in
Cira by 15%. A former chairman of the Company is a director and
shareholder of Cira. In April 1998, the Company and Cira entered into a
restated Subscription and Option Agreement that terminated the March
1996 agreement. Under the new Subscription and Option Agreement, the
Company agreed to purchase additional shares of Cira stock for $.001
per share. The purchase of the additional shares by Neoprobe brings its
interest in Cira to 15% of the total, issued and outstanding, shares of
Cira common stock.
In March 1996, Neoprobe and Cira entered into a Technology Option
Agreement under which the Company provided financial, clinical, and
technical support to conduct a clinical study using Cira's HIV
technology. In return, Neoprobe received an option to acquire an
exclusive global license for Cira's technologies. The Company's total
financial commitment for this clinical study was capped at $500,000,
and the Company had the right to terminate the agreement upon review of
interim results of the clinical study. In April 1998, the Company and
Cira entered into a License and Option Agreement that replaced the 1996
agreement. Under the terms of the new License and Option Agreement, the
Company received an exclusive, worldwide, royalty-bearing license to
use Cira technology for the treatment of HIV-infected patients
including HIV-infected patients co-infected with other viruses. In
consideration for the license, the Company agreed to grant-back to Cira
its option to use Cira technology to treat chronic viral conditions,
and also to pay Cira up to $50,000 to fund research activities at Cira
as incurred.
In connection with the 1996 and 1998 Cira agreements, the Company has
incurred expenses of approximately $125,000, $239,000, and $337,000 for
the years ended December 31, 1996, 1997, and 1998, respectively,
including a total of $431,000 related to the HIV pilot study. No
royalties are due to Cira until the Company recovers out-of-pocket
expenditures for research and development through net sales of licensed
product, up to a maximum of $2 million. Subsequent to December 31,
1998, the Company and Cira have entered into negotiations to further
revise the terms of the Agreement.
In May 1996, the Company executed two license agreements with Dow,
whereby the Company was granted an exclusive license to technology
(including the right to sublicense) covered by patents held by Dow. In
exchange, the Company issued Dow 124,805 shares of Common Stock valued
at $2 million. The Company agreed to make payments to Dow following
achievement of certain development and commercial milestones by the
Company. In addition, if the Company sublicenses the technology, the
Company must pay Dow a certain percentage of all payments received by
the Company. A portion of the technology was used in the Company's RIGS
research and development initiatives. Accordingly, the $500,000
allocated to this portion of the technology was recorded as research
and development expense in 1996. During 1997, the Company determined
that due to specific clinical development achievements of competing
technology, $500,000 of the cost of this technology should be expensed
as research and development costs. At December 31, 1997, approximately
$1 million was included in intangible assets related to this technology
assets with alternative future uses. During the fourth quarter of 1998,
the Company determined, based on analysis of product failures for
similar technologies and unsuccessful attempts to market the technology
to other parties, that the remaining value of the technology was
impaired. Accordingly, the Company recorded an impairment charge of $1
million which is included in research and development for the year
ended December 31, 1998.
e. EMPLOYMENT: The Company has an employment agreement through December
31, 1998, with one executive officer which provides for restricted
stock purchase agreements. The agreement provides that the officer is
entitled to receive up to an aggregate of 75,000 shares of the
Company's Common Stock at par value subject to vesting provisions.
Vesting of the shares does not commence unless there is a change in
control of the Company, or under certain conditions of termination as
defined in the agreement. Of the unvested portion of the restricted
shares, 30,000 shares and 45,000 shares, will be forfeited no later
than June 4, 2006 and May 20, 2008, respectively. The Company has not
recognized any expense under the agreement due to the contingent nature
of the vesting provision and the risk of forfeiture.
F-21
<PAGE> 60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. LEASES:
The Company leases certain office and manufacturing equipment under capital
leases which expire on various dates through 2002. In December 1996, the
Company entered into a seventy-seven month operating lease agreement for
office space, commencing April 1, 1997.
The future minimum lease payments, net of sublease rental income, for the
years ending December 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- --------
<S> <C> <C>
1999 $106,787 $223,073
2000 91,301 205,129
2001 56,590 182,668
2002 14,148 177,201
2003 -- 119,417
-------- --------
268,826 $907,488
========
Less amount representing
interest 13,471
--------
Present value of net minimum
lease payments $255,355
Less current portion 99,539
--------
Capital lease obligations,
excluding current portion $155,816
========
</TABLE>
The Company expects rental income from subleases of $59,620, $65,400,
$67,712, $70,652, and $48,291 in 1999 through 2003, respectively, based on
two subleases executed in December 1998 and February 1999, respectively.
Total rental expense was approximately $515,000, $660,000, and $529,000 for
the years ended December 31, 1996, 1997, and 1998, respectively.
13. EMPLOYEE BENEFIT PLAN:
The Company maintains an employee benefit plan under Section 401(k) of the
Internal Revenue Code. The plan allows employees to make contributions and
the Company may, but is not obligated to, match a portion of the employee's
contribution with the Company's Common Stock, up to a defined maximum. The
Company recorded expenses of $19,500, $57,300, and $41,644 related to
Common Stock to be contributed to the plan in 1996, 1997, and 1998,
respectively.
14. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS:
The Company paid interest, net of amounts capitalized, aggregating $35,917,
$62,653, and $129,874 for the years ended December 31, 1996, 1997, and
1998, respectively.
During 1996, the Company issued Common Stock valued at a total of $5.7
million in exchange for license rights, a convertible note receivable,
warrants, and product development activities. During 1998, the note
receivable was converted into common stock in XTL (see Note 3). The Company
also incurred capital lease obligations of approximately $455,000 in 1997
to finance equipment.
15. CONTINGENCIES:
Pursuant to the Company's decision to liquidate Neoprobe Israel, management
of the Company believes Neoprobe Israel may be subject to claims from the
State of Israel, a bank, and various vendors (collectively, the
"Creditors"). The Company believes its only contractual obligation related
to Neoprobe Israel relates to the limited amount guarantee which is fully
secured through restricted cash and investments (see Note 5 (b)).
F-22
<PAGE> 61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
However, it is possible that the Creditors would seek to pursue claims
against the Company related to potential defaults on the part of Neoprobe
Israel under a judicial doctrine generally referred to as "piercing the
corporate veil." In the event the Creditors were successful in making a
claim under this judicial doctrine, the Company may be required to pay
liabilities of Neoprobe Israel of approximately $6 million. Payment of such
an amount would deplete the Company's cash, and the Company might not be
able to continue operations. Management believes, based on advice from
counsel, that it is unlikely that parties would prevail if such claims were
brought against the Company. As such, no provision for such a contingent
loss has been recorded at December 31, 1998.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position of the Company.
16. LIQUIDITY:
The Company has experienced significant operating losses in each year since
inception, and had an accumulated deficit of approximately $115 million as
of December 31, 1998. For the years ended December 31, 1996, 1997 and 1998,
the Company's net losses were $21 million, $23.2 million and $28 million,
respectively. The Company expects operating losses to continue into 1999 as
the Company expends resources to continue development of the Company's
products and support the growth of the Company's manufacturing, sales and
marketing capabilities. However, there can be no assurance that the Company
will ever achieve a profitable level of operations. During 1998, the
Company made significant changes to its business plan as a result of
unfavorable feedback from regulatory authorities regarding marketing
applications for RIGScan CR49. The Company's previous business plan
involved the expenditure of significant amounts of funds to finance
research and development for the Company's RIGS and ACT initiatives. These
expenditures severely depleted the Company's cash position. As of December
31, 1998, the Company had cash and cash equivalents and available-for-sale
securities of $3.5 million. Of this amount, approximately $1.0 million is
pledged as security associated with the Company's revolving line of credit
and $1.0 million is restricted related to the debt outstanding under the
financing program for the construction of Neoprobe Israel. At December 31,
1998, the Company had access to approximately $1.5 million in unrestricted
funds to finance its operating activities for 1999.
The Company expects its revised business plan, which focuses on gamma
guided surgery products such as the Company's line of hand-held gamma
detection instruments, will result in increases in sales during 1999 that
will improve the Company's liquidity position. The revised plan also
significantly reduces operating expenses compared to the previous plan
which was heavily focused on drug research and development activities. The
Company is actively pursuing other sources of improving its projected
liquidity position for 1999. Potential sources of capital include, but are
not limited to, sale of non-strategic assets and raising of funds through
private security placements. However, there can be no assurances that the
Company will be able to raise funds on a timely basis, in the amounts
required, at terms acceptable to the Company, or at all. However, in the
first quarter of 1999, the Company issued convertible preferred stock in a
private placement raising gross proceeds of $3 million (see Note 17). The
Company is also attempting to sell approximately $1.5 million in
non-strategic assets. If the Company does not achieve its business plan as
currently intended, it may need to further modify its business plan and
consummate other financing alternatives which have been presented to the
Company. Such financing alternatives may require further sales of equity
securities that could be dilutive to current holders of common stock, debt
financing which may be on unfavorable terms, or asset dispositions that
could force the Company to further change its business plan.
17. SUBSEQUENT EVENTS:
a. PRIVATE PLACEMENT: On February 16, 1999, the Company executed a
Purchase Agreement (the "Agreement") to complete the private placement
of 30,000 shares of 5% Series B Convertible Preferred Stock (the
"Series B") for gross proceeds of $3 million ($2.8 million, net). The
Series B have a $100 per share stated value and is convertible into
Common Stock of the Company. In connection with the private placement,
the Company also issued 2.9 million warrants to purchase Common Stock
of the Company at an initial exercise price of $1.03 per share.
The Company is required to pay a cumulative 5% annual dividend on the
Series B. Dividends accrue daily and are payable on each six-month and
one year anniversary of the initial closing. Neoprobe has the option of
paying these dividends in cash or in shares of Common Stock. On any day
the Common Stock trades below $0.55 per share, the annual dividend rate
will be 10%.
Generally, each share of the Series B may be converted, at the option
of the owner, into the number of shares of Common Stock calculated by
dividing the sum of $100 and any unpaid dividends on the share of
Series B by the conversion price. The initial conversion price of the
Series B sold is $1.03 per share of Common Stock. If, on February 16,
2000, the market value of Common Stock is less than $1.03, the
conversion price will be reset to the market value of a share on
February 16, 2000, but not less than $0.515. If the market value of
Common Stock is less than $1.03, the conversion price will be the
average of the three lowest closing bid prices for a share of Common
Stock during the previous 10 trading days. The Company may refuse to
convert a share of Series B that the Company sold if its conversion
price is less than $0.55. However, if the conversion price of a share
is less than $0.55 for more than 60 trading days in any 12-month
period, then the Company must either convert a share at the share's
conversion price or pay the owner cash based on the highest closing
price for Common Stock during the period from the date of the owner's
conversion request until the payment. The conversion price may also be
adjusted to prevent dilution of the economic interests of the owners
of Series B in the event certain other equity transactions are
consummated by the Company. The exercise price of the warrants is also
subject to adjustment based on terms defined in the Agreement, subject
to a floor price of $0.62 per share.
Holders of the Series B have certain liquidation preferences over other
shareholders under certain provisions as defined in the Agreement and
have the right to cast the same number of votes as if the owner had
converted on the record date.
Under the terms of the Agreement, the Company is not required to issue
shares of Common Stock representing more than 20% of the total number
of outstanding shares of Common Stock without shareholder approval or
if such issuance would violate the rules of the National Association of
Securities Dealers. If further issuances of shares of Common Stock upon
conversion of the Series B would violate those rules, then Neoprobe
will redeem the shares for cash instead of converting the shares to
Common Stock.
Under certain conditions, the Company may be obligated to redeem
outstanding shares of Series B for $120 per share. Conditions under
which redemption may be required include: failure to obtain stockholder
approval of the transaction, failure to meet filing deadlines for a
registration statement for Common Stock into which the Series B may be
converted, failure to keep the aforementioned registration statement
effective for three years, a material breach of the purchase agreement,
delisting from the NASDAQ Stock Market, a material qualification of the
audit opinion on the consolidated financial statements, or if the
Company is liquidated, merged, or sells significantly all of its
assets. The Company has obtained a waiver from the holders of the
Series B of the redemption requirements associated with the issuance by
the Company's auditors of a going concern opinion on the Company's
consolidated financial statements for the year ended December 31, 1998.
The Company also has the right to place an additional 30,000 shares of
Series B and warrants to purchase a like amount of Common Stock for $3
million on the achievement of certain quarterly sales milestones, as
defined in the agreement, stock price targets, and subject to
stockholder approval. The conversion price for the Series B for the
subsequent placement, as well as the exercise price for the related
warrants, will be based on the market prices of the Company's Common
Stock prior to the subsequent closing Series B and warrants for Common
Stock sold in a subsequent closing would also be subject to price and
dilution adjustments similar to the terms of the initial closing.
Pursuant to the private placement, the Company signed a financial
advisory agreement with the placement agent providing the agent with
the right to purchase 1,500 shares of Series B convertible into Common
Stock, initially at $1.03 per share, and warrants to purchase 145,631
shares of Common Stock of the Company initially exercisable at $1.03
per share. In addition, the Company agreed to pay the agent a monthly
financial advisory fee and success fees based on certain investment
transactions consummated during the 24-month term of the agreement.
The Series B will be recorded at the amount of gross proceeds less the
costs of the financing and the fair value of the warrants and
classified as mezzanine financing above the stockholders' equity
section on the balance sheet. The financing cost and warrants will be
accreted against additional paid-in capital-common stock if an event of
redemption is assessed as probable at the balance sheet date. The
calculated conversion price at February 16, 1999, the first available
conversion date, was $1.03 per share. In accordance with the FASB's
Emerging Issue Task Force Topic D-60, the difference between this
conversion price and the closing market price of $1.81 will be
reflected as incremental yield to preferred stockholders in the
Company's loss per share calculation for the quarter ended March 31,
1999.
b. MARKETING AGREEMENTS: On January 29, 1999, the Company provided EES
with notice of the Company's intent to terminate the Agreement
effective March 1, 1999.
Effective February 1, 1999, the Company executed a Sales and Marketing
Agreement with KOL Bio-Medical Instruments, Inc. ("KOL") to market the
Company's current and future gamma guided surgery products in the U.S.
In exchange for marketing and selling the products and providing
customer training, KOL will receive commissions on net sales of
applicable products and milestone payments on the achievement of
certain levels of product sales. The term of the agreement is
F-23
<PAGE> 62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
indefinite with provisions for both parties to terminate with a minimum
of six months notice under certain conditions such as non-performance
or without cause. However, if terminated by the Company without cause
or because of a change of control of the Company, KOL is entitled to
receive a termination fee of 15% based on monthly net sales for a
maximum of twenty-four months, and the Company is required to buy back,
at a discount, demonstration units purchased by KOL during the
nine-month period preceding termination.
F-24
<PAGE> 63
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
NEOPROBE CORPORATION
-----------------------
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED:
DECEMBER 31, 1998
-----------------------
EXHIBITS
-----------------------
===============================================================================
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT Number of Pages Page in Manually
NUMBER Description in Original Document+ Signed Original
<S> <C> <C> <C>
3.1. Complete Restated Certificate of Incorporation of
Neoprobe Corporation, as corrected and as amended 25 71
---
3.2. Amended and Restated By-Laws, as amended 15 *
---
4.1. See Articles FOUR, FIVE, SIX and SEVEN of the
Restated Certificate of Incorporation of Registrant 25 71
---
4.2. See Articles II and VI and Section 2 of Article III and
Section 4 of Article VII of the Amended and Restated
By-Laws of the Registrant 13 *
---
4.3. Rights Agreement dated as of July 18, 1995 between
the Registrant and Continental Stock Transfer & Trust
Company. 47 *
---
4.4. Amendment Number 1 to the Rights Agreement
between the Registrant and Continental Stock Transfer
& Trust Company dated February 16, 1999. 3 96
---
10.1.1.-10.1.24. Reserved
10.1.25. Rights Agreement between the Registrant and
Continental Stock Transfer & Trust Company dated as
of July 18, 1995. 47 *
---
10.1.26.-10.1.30. Reserved 18 *
---
10.1.31. Amendment Number 1 to the Rights Agreement
between the Registrant and Continental Stock Transfer
& Trust Company dated February 16, 1999. 3 96
---
10.1.32. Preferred Stock and Warrant Purchase Agreement
dated February 16, 1999 among the Registrant, The
Aries Master Fund, a Cayman Island exempted
company, and The Aries Domestic Fund, L.P. 44 99
---
10.1.33. Warrant dated February 16, 1999 for the purchase of
shares to purchase Common Stock issued to The Aries
Master Fund, a Cayman Island exempted company.
This exhibit is one of two substantially identical
instruments and is accompanied by a schedule
identifying the other instrument omitted and setting
forth the material details in which such instrument
differs from the one filed herewith. 11 130
---
</TABLE>
- -------------------
+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT Number of Pages Page in Manually
NUMBER Description in Original Document+ Signed Original
<S> <C> <C> <C>
10.1.34. Option Units dated February 16, 1999 for the purchase
of shares of 5% Series B Convertible Preferred Stock
of the Registrant and warrants to purchase shares of
Common Stock issued to Paramount Capital, Inc. 15 140
---
10.1.35. Financial Advisory Agreement dated February 16,
1999 between the Registrant and Paramount Capital,
Inc. 8 153
---
10.1.36. Letter agreement dated February 24, 1999 among the
Registrant, The Aries Master Fund, a Cayman Island
Exempted Company and The Aries Domestic Fund,
L.P. 2 160
---
10.1.37. Letter agreement dated March 12, 1999 among the
Registrant, The Aries Master Fund, a Cayman Island
Exempted Company and The Aries Domestic Fund, L.P. 2 162
---
10.1.38. Letter agreement dated April 1, 1999 among the
Registrant, The Aries Master Fund, a Cayman Island
Exempted Company, and The Aries Domestic Fund, L.P. 3 164
---
10.2.1.-10.2.14. Reserved
10.2.15. Option Agreements between the Registrant and David
C. Bupp 17 *
---
10.2.16.-10.2.17. Reserved
10.2.18. Non-Qualified Stock Option Agreement dated May 3,
1993 between the Registrant and David C. Bupp 4 *
---
10.2.19.-10.2.20. Reserved
10.2.21. Non-Qualified Stock Option Agreement dated May 3,
1993 between the Registrant and John L. Ridihalgh 4 *
---
10.2.22. Reserved
10.2.23. Non-Qualified Stock Option Agreement dated
February 28, 1992 and amended and restated June 3,
1993 between the Registrant and David C. Bupp 4 *
---
10.2.24. Non-Qualified Stock Option Agreement dated July 1,
1990 and amended and restated June 3, 1993 between
the Registrant and David C. Bupp 4 *
---
10.2.25. Non-Qualified Stock Option Agreement dated June 1,
1992 and amended and restated June 3, 1993 between
the Registrant and John L. Ridihalgh 4 *
---
10.2.26. Amended and Restated Stock Option and Restricted
Stock Purchase Plan dated March 3, 1994 11 *
---
</TABLE>
- -------------------
+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT Number of Pages Page in Manually
NUMBER Description in Original Document+ Signed Original
<S> <C> <C> <C>
10.2.27.-10.2.28. Reserved.
10.2.29. Non-Qualified Stock Option Agreement dated February 16,
1995 between the Registrant and John L.
Ridihalgh 3 *
---
10.2.30. Non-Qualified Stock Option Agreement dated
February 16, 1995 between the Registrant and
David C. Bupp 3 *
---
10.2.31. Employment Agreement dated as of January 1, 1996
between the Registrant and John L. Ridihalgh 7 *
---
10.2.32.-10.2.33 Reserved.
10.2.34. Restricted Stock Purchase Agreement dated June 5,
1996 between the Registrant and John L. Ridihalgh 4 *
---
10.2.35. Restricted Stock Purchase Agreement dated June 5,
1996 between the Registrant and David C. Bupp 4 *
---
10.2.36. Reserved.
10.2.37. 1996 Stock Incentive Plan dated January 18, 1996 as
amended March 13, 1997
21 *
---
10.2.38. Non-Qualified Stock Option Agreement dated January
18, 1996 between the Registrant and John L. Ridihalgh 3 *
---
10.2.39. Non-Qualified Stock Option Agreement dated January
18, 1996 between the Registrant and David C. Bupp 3 *
---
10.2.40. Non-Qualified Stock Option Agreement dated
February 3, 1997 between the Registrant and John L.
Ridihalgh 3 *
---
10.2.41. Non-Qualified Stock Option Agreement dated
February 3, 1997 between the Registrant and David C.
Bupp 3 *
---
10.2.42. Reserved.
10.2.43. Agreement, Release, and Waiver dated February 23,
1998 between the Registrant and Dr. William
Eisenhardt. 7 *
---
10.2.44. Employment Agreement dated as of January 1, 1998
between the Registrant and David C. Bupp. 7 *
---
10.2.45. Restricted Stock Purchase Agreement between David
C. Bupp and the Registrant dated May 20, 1998. 3 *
---
</TABLE>
- -------------------
+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT Number of Pages Page in Manually
NUMBER Description in Original Document+ Signed Original
<S> <C> <C> <C>
10.2.46. Waiver by David Bupp dated February 16, 1999 of
certain provisions in the employment agreement
between the Registrant and David C. Bupp dated
January 1, 1998. 1 167
---
10.2.47. Severance Agreement dated October 23, 1998 between
the Registrant and Matthew F. Bowman. This
agreement is one of three substantially identical
agreements and is accompanied by a schedule
identifying the other agreements omitted and setting
forth the material details in which such documents
differ from the one that is filed herewith. 4 168
---
10.2.48. Restricted Stock Agreement dated October 23, 1998
between the Registrant and Matthew F. Bowman. This
agreement is one of three substantially identical
agreements and is accompanied by a schedule
identifying the other agreements omitted and setting
forth the material details in which such documents
differ from the one that is filed herewith. 4 173
---
10.2.49. Separation Agreement dated October 21, 1998
between the Registrant and John L. Ridihalgh. 9 176
---
10.3.1. Technology Transfer Agreement dated July 29, 1992
between the Registrant and The Dow Chemical
Corporation (subject to an order granting portions
thereof confidential treatment) 15 *
---
10.3.2.-10.3.29. Reserved.
10.3.30. Facility Agreement dated July 17, 1995 among
Registrant, Neoprobe (Israel) Ltd., and Rotem
Industries, Ltd. (subject to an order granting portions
thereof confidential treatment) 12 *
---
10.3.31. Cooperative Research and Development Agreement
between Registrant and National Cancer Institute 67 *
---
10.3.32. First Amendment to Facility Agreement dated July 17,
1995 among Registrant, Neoprobe (Israel), Ltd. and
Rotem Industries, Ltd. 1 *
---
10.3.33.-10.3.34. Reserved.
10.3.35. Investors' Rights Agreement dated February 5, 1996
between Registrant and XTL Biopharmaceuticals, Ltd 19 *
---
10.3.36. Reserved.
</TABLE>
- -------------------
+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT Number of Pages Page in Manually
NUMBER Description in Original Document+ Signed Original
<S> <C> <C> <C>
10.3.37. Research and Development Agreement dated
February 13, 1996 between Registrant and XTL
Biopharmaceuticals, Ltd. (subject to an order granting
portions thereof confidential treatment) 14 *
---
10.3.38. Sublicense Agreement dated February 13, 1996
between Registrant and XTL Biopharmaceuticals, Ltd.
(subject to an order granting portions thereof
confidential treatment) 8 *
---
10.3.39.-10.3.44. Reserved.
10.3.45. License dated May 1, 1996 between Registrant and
The Dow Chemical Company 9 *
---
10.3.46. License Agreement dated May 1, 1996 between Registrant
and The Dow Chemical Company(subject to an order granting
portions thereof confidential
treatment) 27 *
---
10.3.47. License and Option Agreement between Cira
Technologies, Inc. and Neoprobe Corporation dated
April 1, 1998. 32 *
---
10.3.48. Restated Subscription and Option Agreement between
the Registrant, Cira Technologies, Inc., Richard G.
Olsen, John L. Ridihalgh, Richard McMorrow, James
R. Blakeslee, Mueller & Smith, Ltd., Pierre Triozzi
and Gregory Noll, dated April 17, 1998. 12 *
---
10.3.49. Restated Stockholders Agreement with the Registrant,
Cira Technologies, Inc., Richard G. Olsen, John L.
Ridihalgh, Richard McMorrow, James R. Blakeslee,
Mueller & Smith, Ltd., Pierre L. Triozzi and Gregory
Noll, dated April 17, 1998. 5 *
---
10.4.1.-10.4.15. Reserved
10.4.16. Project Management Agreement dated May 17, 1995
between Neoprobe (Israel) Ltd. and BARAN Project
Construction Ltd. 6 *
---
10.4.17.-10.4.21. Reserved.
10.4.22. Sales and Marketing Agreement dated April 21, 1998
between the Registrant and Ethicon Endo-Surgery,
Inc., an Ohio corporation (subject to an order granting
portions thereof confidential treatment) 13 *
---
10.4.23. Loan Agreement between the Registrant and Bank
One, NA, dated April 16, 1998 (incorporated by
reference to Exhibit 10.4.23 to the 2nd Quarter 1998
Form 10-Q). 13 *
---
</TABLE>
- -------------------
+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT Number of Pages Page in Manually
NUMBER Description in Original Document+ Signed Original
<S> <C> <C> <C>
10.4.24. Variable Rate Cognovit Promissory Note, dated April
16, 1998, issued by Registrant to Bank One, NA. 10 *
---
10.4.25. Security Agreement between the Registrant and Bank
One, NA, dated April 16, 1998. 5 *
---
10.4.26. Letter amendment dated October 14, 1998 to the Sales
and Marketing Agreement dated April 21, 1998
between the Registrant and Ethicon Endo-Surgery,
Inc., an Ohio corporation (subject to an order granting
portions thereof confidential treatment) 2 *
---
10.4.27. Promissory Note, dated September 25, 1998, issued by
Registrant to Bank One, NA. 2 *
---
10.4.28. Addendum to Promissory Note dated September 25,
1998 issued by Registrant to Bank One, NA. 6 *
---
10.4.29. Covenant Agreement dated September 25, 1998
between the Registrant and Bank One, NA. 3 *
---
10.4.30. Assignment of Deposit Account dated September 25,
1998 between Registrant and Bank One, NA. 4 *
---
10.4.31. Asset Purchase Agreement dated October 14, 1998
between the Registrant, Neoprobe AB, a corporation
organized and existing under the laws of Sweden, and
Bioinvent Production AB, a corporation organized and
existing under the laws of Sweden. 8 *
---
10.4.32. Supply Agreement between the Registrant and eV
Products dated December 8, 1997 (filed pursuant to
Rule 24b-2 under which the Registrant has requested
confidential treatment of certain portions of this
Exhibit). 17 185
---
11.1. Computation of Net Loss Per Share 1 203
---
21.1. Subsidiaries of Registrant 1 204
---
23.1. Consent of PricewaterhouseCoopers LLP 1 205
---
23.2. Consent of KPMG LLP 1 206
---
24.1. Powers of Attorney 9 207
---
24.2. Certified resolution of the Registrant's Board of
Directors authorizing officers and directors signing on
behalf of the Company to sign pursuant to a power of
attorney 1 215
---
</TABLE>
- -------------------
+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
NEOPROBE CORPORATION
(as corrected February 18, 1994 and
as amended June 27, 1994, July 25, 1995, June 3, 1996 and March 17, 1999)
ARTICLE ONE
The name of the corporation is Neoprobe Corporation.
ARTICLE TWO
The address of the corporation's registered office in the State of
Delaware is the Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is the Corporation Trust Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
(Article Four was amended to increase the total number of shares
authorized to be outstanding from 22,000,000 to 55,000,000 , the total number
of shares of Common Stock from 20,000,000 to 50,000,000 and the total number of
shares of Preferred Stock from 2,000,000 to 5,000,000 by a resolution duly
adopted by the Board of Directors on March 3, 1994 and duly adopted by the
stockholders on May 26, 1994).
ARTICLE FOUR
4.1 Authorized Shares. The total number of shares of capital stock
which the Corporation has authority to issue is 55,000,000 shares, consisting
of:
(a) 50,000,000 shares of Common Stock, par value $.001 per share (the
"Common Stock");
(b) 5,000,000 shares of Preferred Stock, par value $.001 per share (the
"Preferred Stock").
4.2 Common Stock.
(a) Subject to such voting rights of any other class or series of
securities as may be granted from time to time pursuant to this certificate of
incorporation, any amendment thereto, or the provisions of the laws of the
State of Delaware governing corporations, voting rights shall be vested
exclusively in the holders of Common Stock. Each holder of Common Stock shall
have one vote in respect of each share of such stock held.
(b) Subject to the rights of any other class or series of stock, the
holders of shares of Common Stock shall be entitled to receive, when and as
declared by the board of directors, out of the assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the board of directors.
- 1 -
<PAGE> 2
(c) Subject to such rights of any other class or series of securities
as may be granted from time to time, the holders of shares of Common Stock
shall be entitled to receive all the assets of the Corporation available for
distribution to shareholders in the event of the voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, ratably, in
proportion to the number of shares of Common Stock held by them. Neither the
merger or consolidation of the Corporation into or with any other corporation,
nor the merger or consolidation of any other corporation into or with the
Corporation, nor the sale, lease, exchange or other disposition (for cash,
shares of stock, securities, or other consideration) of all or substantially
all the assets of the Corporation, shall be deemed to be a dissolution,
liquidation, or winding up, voluntary or involuntary, of the Corporation.
4.3 Preferred Stock. Shares of Preferred Stock may be issued from time
to time in one or more series. The board of directors of the Corporation is
hereby authorized to determine and alter all rights, preferences, and
privileges and qualifications, limitations, and restrictions thereof
(including, without limitation, voting rights and the limitation and exclusion
thereof) granted to or imposed upon any wholly unissued series of Preferred
Stock and the number of shares constituting any such series and the designation
thereof, and to increase or decrease (but not below the number of shares of
such series then outstanding) the number of shares of any series subsequent to
the issue of shares of that series then outstanding. In case the number of
shares of any series is so decreased, the shares constituting such reduction
shall resume the status which such shares had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE FIVE
The business and affairs of the Corporation shall be managed by or under
the direction of the board of directors, and the directors need not be elected
by ballot unless required by the by-laws of the Corporation. In furtherance and
not in limitation of the powers conferred by statute, the board of directors of
the Corporation is expressly authorized to adopt, amend, or repeal the by-laws
of the Corporation.
ARTICLE SIX
Action shall be taken by the stockholders of the Corporation only at
annual or special meetings of stockholders, and stockholders may not act by
written consent. Special meetings of the Corporation may be called only as
provided in the by-laws.
ARTICLE SEVEN
Meetings of the stockholders may be held within or without the State of
Delaware, as the by-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors or in the
by-laws of the Corporation. The board of directors shall from time to time
decide whether and to what extent and at what times and under what conditions
and requirements the accounts and books of the Corporation, or any of them,
except the stock book, shall be open to the inspection of the stockholders, and
no stockholder shall have any right to inspect any books or documents of the
Corporation except as conferred by the laws of the State of Delaware or as
authorized by the board of directors.
(Article Eight was amended in its entirety by a resolution duly adopted
by the Board of Directors on January 18, 1996 and duly adopted by the
stockholders at the Annual Meeting of Stockholders held on May 30, 1996).
- 2 -
<PAGE> 3
ARTICLE EIGHT
Notwithstanding any other provision set forth in the Certificate of
Incorporation of the Corporation or its By-laws, the board of directors shall
be divided into three classes; the term of office of those of the first class
to expire at the annual meeting next ensuing; of the second class one year
thereafter; of the third class two years thereafter; and at each annual
election held after the initial classification of the board of directors and
election of directors to such classes, directors shall be chosen for a full
term of three years, as the case may be, to succeed those whose terms expire.
The total number of directors constituting the full board of directors and the
number of directors in each class shall be fixed by, or in the manner provided
in the by-laws, but the total number of directors shall not exceed seventeen
(17) nor shall the number of directors in any class exceed six (6). Subject to
the foregoing, the classes of directors need not have the same number of
members. No reduction in the total number of directors or in the number of
directors in any class shall be effective to remove any director or to reduce
the term of any director. If the board of directors increases the number of
directors in a class, it may fill the vacancy created thereby for the full
remaining term of a director in that class even though such term may extend
beyond the next annual election. The board of directors may fill any vacancy
occurring for any other reason for the full remaining term of the director
whose death, resignation or removal caused the vacancy, even though such term
may extend beyond the next annual election.
ARTICLE NINE
(a) The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended, indemnify all persons whom it may indemnify pursuant
hereto.
(b) To the fullest extent permitted by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended, a
director of this Corporation shall not be personally liable for the Corporation
or its Stockholders for monetary damages for breach of fiduciary duty as a
director. The modification or repeal of this Article Nine shall not affect the
restriction hereunder of a director's personal liability for any breach, act,
or omission occurring prior to such modification or repeal.
ARTICLE TEN
The Corporation is to have perpetual existence.
* * *
(A Certificate of Correction was filed to correct a failure to set forth
in the Restated Certificate of Incorporation filed with the Secretary of State
of Delaware on November 9, 1992, the following resolutions duly adopted by the
Board and duly approved by the stockholders):
WHEREAS, the Board of Directors of the Corporation deems it to be
advisable and in the best interests of the Corporation that the Corporation
effectuates a reverse split of its common stock, par value $0.001 per share (the
"Common Stock"), to cause the total number of issued and outstanding shares of
Common Stock to be 5,162,762 prior to a contemplated public offering of the
securities of the Corporation; it is therefore:
RESOLVED, that, subject to approval by the Corporation's stockholders,
there is hereby declared a one-for-two reverse split of the issued and
outstanding shares of Common Stock, effective immediately prior to the effective
time of the contemplated public offering (the "Conversion Time"), pursuant to
which each issued and outstanding share of Common Stock shall automatically be
converted into one-half of the one share of Common Stock, and each stockholder
of record at the Conversion Time shall receive one or more certificates
representing the number of fully-paid and nonassessable shares of Common Stock
equal to the number of shares held after the Conversion Time as a result of the
foregoing reverse split;
- 3 -
<PAGE> 4
RESOLVED, FURTHER, that the shares of Common Stock that cease to be
outstanding as a result of the reverse stock split shall be authorized but
unissued shares;
RESOLVED, FURTHER, that fractions of a share existing after the reverse
stock split shall not be issued to the stockholders, and that such fractions
shall be paid in cash at their pro rata fair value, which the Board of Directors
hereby determines, after due consideration, to be $6.00 per share as of the
Conversion Time;
RESOLVED, FURTHER, that appropriate adjustment shall be made to the
applicable conversion or other ratios of the Corporation's outstanding warrants,
options or other convertible securities to take account of the change in the
outstanding Common Stock resulting from the reverse stock split; and
RESOLVED, FURTHER, that the Conversion Time for the one-for-two reverse
split of the issued and outstanding shares of Common Stock as authorized on July
22, 1992, and approved by the Corporation's stockholders, shall be at the close
of business on Monday, November 9, 1992.
* * *
(The Board of Directors provided for a series of Preferred Stock on July
18, 1995 by the addition to the Certificate of Incorporation of the following
paragraphs which were incorporated in a Certificate of Designations,
Preferences and Rights of Series A Junior Participating Preferred Stock filed
on July 25, 1995 ):
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 500,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Junior Participating Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $.05 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $.001 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after August 28, 1995 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
- 4 -
<PAGE> 5
(B) The Corporation shall declare a dividend or distribution on
the Series A Junior Participating Preferred Stock as provided in paragraph (A)
above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $.05 per share
on the Series A Junior Participating Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Junior Participating Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to 100 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes to which holders of Class A Junior
Participating Preferred Stock were entitled immediately prior to such event
under the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on all
shares of Series A Junior Participating Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the Series A
Junior Participating Preferred Stock) with dividends in arrears in an amount
equal to six (6) quarterly dividends thereon, voting as a class, irrespective
of series, shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that neither such voting right nor the right
of the holders of any other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be exercised unless the
holders of ten percent (10%) in number of shares of Preferred Stock
- 5 -
<PAGE> 6
outstanding shall be present in person or by proxy. The absence of a quorum of
the holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during an existing
default period, they shall have the right, voting as a class, to elect
Directors to fill such vacancies, if any, in the Board of Directors as may then
exist up to two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may be so elected at
any special meeting does not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased or decreased except
by vote of the holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari passu with the Series
A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during
an existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the Chairman of the Board, President or the
Secretary of the Corporation. Notice of such meeting and of any annual meeting
at which holders of Preferred Stock are entitled to vote pursuant to this
paragraph (C)(iii) shall be given to each holder of record of Preferred Stock
by mailing a copy of such notice to him at his last address as the same appears
on the books of the Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock,
and other classes of stock of the Corporation if applicable, shall continue to
be entitled to elect the whole number of Directors until the holders of
Preferred Stock shall have exercised their right to elect two (2) Directors
voting as a class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the expiration of
the default period, and (y) any vacancy in the Board of Directors may (except
as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a
majority of the remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall have become
vacant. References in this paragraph (C) to Directors elected by the holders of
a particular class of stock shall include Directors elected by such Directors
to fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period,
(x) the right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of Directors shall be such
number as may be provided for in the certificate of incorporation or by-laws
irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the certificate of incorporation
or by-laws). Any vacancies in the Board of Directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
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<PAGE> 7
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Junior Participating Preferred Stock outstanding shall have been paid
in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Junior Participating Preferred Stock, except dividends paid ratably on the
Series A Junior Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior (either as
to dividends or upon dissolution, liquidation or winding up) to the Series A
Junior Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series A Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
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<PAGE> 8
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received [$.10] per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the holders of shares
of Series A Junior Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the Series
A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of the
Series A Liquidation Preference and the Common Adjustment in respect to all
outstanding shares of Series A Junior Participating Preferred Stock and Common
Stock, respectively, holders of Series A Junior Participating Preferred Stock
and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Junior Participating Preferred Stock
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
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<PAGE> 9
Section 8. Optional Redemption.
(A) The Corporation shall have the option to redeem the whole or
any part of the Series A Junior Participating Preferred Stock at any time at a
redemption price equal to, subject to the provisions for adjustment hereinafter
set forth, 100 times the "current per share market price" of the Common Stock
on the date of the mailing of the notice of redemption, together with unpaid
accumulated dividends to the date of such redemption. In the event the
Corporation shall at any time after the Rights Declaration Date, (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the amount to which holders
of shares of Series A Junior Participating Preferred Stock were otherwise
entitled immediately prior to such event under the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. The "current per share market
price" on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the 10 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on
the New York Stock Exchange or, if the Common Stock is not listed or admitted
to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other
system then in use or, if on any such date the Common Stock is not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Corporation. If on such date no such
market maker is making a market in the Common Stock, the fair value of the
Common Stock on such date as determined in good faith by the Board of Directors
of the Corporation shall be used. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of business or, if
the Common Stock is not listed or admitted to trading on any national
securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which
banking institutions in the State of New York are not authorized or obligated
by law or executive order to close.
(B) Notice of any such redemption shall be given by mailing to
the holders of the Series A Junior Participating Preferred Stock a notice of
such redemption, first class postage prepaid, not later than the thirtieth day
and not earlier than the sixtieth day before the date fixed for redemption, at
their last address as the same shall appear upon the books of the Corporation.
Any notice which is mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the stockholder received such
notice, and failure duly to give such notice by mail, or any defect in such
notice, to any holder of Series A Junior Participating Preferred Stock shall
not affect the validity of the proceedings for the redemption of such Series A
Junior Participating Preferred Stock are to be redeemed, the redemption shall
be made by lot as determined by the Board of Directors.
(C) If any such notice of redemption shall have been duly given
or if the Corporation shall have given to the bank or trust company hereinafter
referred to irrevocable written authorization promptly to give or complete such
notice, and if on or before the redemption date specified therein the funds
necessary for such redemption shall have been deposited by the Corporation with
the bank or trust company designated in such notice, doing business in the
United States of America and having a capital, surplus and undivided profits
aggregating at least $25,000,000 according to its last published statement of
condition, in trust for the benefit of the holders of Series A Junior
Participating Preferred Stock called for redemption, then, notwithstanding that
any certificate for such shares so called for redemption shall not have been
surrendered for cancellation, from and after the time of such deposit all such
shares called for redemption shall no longer be deemed outstanding and all
rights with respect to such shares shall no longer be deemed outstanding and
all rights with respect to such shares shall forthwith cease and terminate,
except the right of the holders thereof to receive from such bank or trust
company at any time after the time of such deposit the funds so deposited,
without
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<PAGE> 10
interest, and the right to exercise, up to the close of business on the fifth
day before the date fixed for redemption, all privileges of conversion or
exchange if any. In case less than all the shares represented by any
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. Any interest accrued on such funds shall be
paid to the Corporation from time to time. Any funds so deposited and unclaimed
at the end of six years from such redemption date shall be repaid to the
Corporation, after which the holders of shares of Series A Junior Participating
Preferred Stock called for redemption shall look only to the Corporation for
payment thereof; provided that any funds so deposited which shall not be
required for redemption because of the exercise of any privilege of conversion
or exchange subsequent to the date of deposit shall be repaid to the
Corporation forthwith.
Section 9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as
to the payment of dividends and the distribution of assets, unless the terms of
any such series shall provide otherwise.
Section 10. Amendment. So long as any shares of Series A Junior
Participating Preferred Stock are outstanding, the Restated Certificate of
Incorporation of the Corporation shall not be further amended in any manner
which would materially alter or change the powers, preferences or special
rights of the Series A Junior Participating Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a majority or
more of the outstanding shares of Series A Junior Participating Preferred
Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holders fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
* * *
(The Board of Directors provided for a series of Preferred Stock on
February 11, 1999 by the addition to the Certificate of Incorporation of the
following paragraphs which were incorporated in a Certificate of Designations,
of 5% Series B Convertible Preferred Stock filed on March 17, 1999):
RESOLVED, that pursuant to the authority conferred on the Board of Directors of
this Corporation by its Certificate of Incorporation, a series of Preferred
Stock, par value $.001 per share, of the Corporation is hereby established and
created, and that the designation and number of shares thereof and the voting
and other powers, preferences and relative, participating, optional or other
rights of the shares of such series and the qualifications, limitations and
restrictions thereof are as follows:
5% Series B Convertible Preferred Stock
1 Designation and Amount and Definitions. (a) There shall be a
series of Preferred Stock designated as "5% Series B Convertible Preferred
Stock" and the number of shares constituting such series shall be 63,000. Such
series is referred to herein as the "Series B Preferred Stock".
Notwithstanding any other provision in this Certificate of Designations (this
"Certificate of Designations") to the contrary, such series shall be senior to
all other classes or series of stock of the Corporation with respect to the
receipt of dividends and the receipt of distributions of assets upon
liquidation, dissolution or winding up. Such number of shares may be increased
or decreased by resolution of the Board of Directors; provided, however, that
no decrease shall reduce the number of shares of Series B Preferred Stock to
fewer than the number of shares of Series B Preferred Stock then issued and
outstanding.
(b) As used in this Certificate of Designations, the following terms
shall have the following meanings:
"Additional Preferred Shares" shall mean any shares of Series B
Preferred Stock issued subsequent to the First Closing Date.
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<PAGE> 11
The "Closing Bid Price" for any security of the Corporation, for
each Trading Day, shall be the reported closing bid price of such
security on the national securities exchange on which such security is
listed or admitted to trading, or, if such security is not listed or
admitted to trading on any national securities exchange, shall mean the
reported closing bid price of such security on the Nasdaq SmallCap
Market or the Nasdaq National Market System (collectively referred to as
"Nasdaq") or, if such security is not listed or admitted to trading on
any national securities exchange or quoted on Nasdaq, shall mean the
reported closing bid price of such security on the principal securities
exchange on which such security is listed or admitted to trading (based
on the aggregate dollar value of all securities listed or admitted to
trading) or, if such security is not listed or admitted to trading on a
national securities exchange, quoted on Nasdaq or listed or admitted to
trading on any other securities exchange, shall mean the closing bid
price in the over-the-counter market as furnished by any member firm of
the National Association of Securities Dealers, Inc. (the "NASD"),
selected from time to time by the Corporation for that purpose.
The "Closing Trade Price" for any security of the Corporation,
for each Trading Day, shall mean the price at which such security was
last exchanged on the Stock Market during such Trading Day, or, if there
were no transactions on such Trading Day, the average of the reported
closing bid and asked prices, regular way, of such security on the
relevant Stock Market on such Trading Day.
"Common Stock" shall mean the common stock, par value $.001 per
share, of the Corporation.
"Conversion Price" is defined in Section 4(a).
"Conversion Price Floor" shall mean (i) with respect to the
Initial Preferred Shares, the lesser of (x) $.55 and (y) 50% of the
average Closing Bid Price of the Common Stock for the five Trading Days
immediately prior to the First Closing Date and (ii) with respect to the
Additional Preferred Shares, 50% of the average Closing Bid Price of the
Common Stock for the five Trading Days immediately prior to the Second
Closing Date.
"Conversion Rate Ceiling" shall mean the rate at which a
particular share of Series B Preferred Stock shall be convertible when
the applicable Conversion Price is the Conversion Price Floor.
"Conversion Rate" shall mean the rate at which a particular share
of Series B Preferred Stock is convertible at any time into Common Stock
and shall be determined by dividing the then applicable Conversion Price
into the sum of (x) $100.00 plus (y) all accrued and unpaid dividends on
such share of Series B Preferred Stock.
"Fair Market Value" of any asset (including any security) means
the fair market value thereof as mutually determined by the Corporation
and the holders of a majority of the Series B Preferred Stock then
outstanding. If the Corporation and the holders of a majority of the
Series B Preferred Stock then outstanding are unable to reach agreement
on any valuation matter, such valuation shall be submitted to and
determined by a nationally recognized independent investment bank
selected by the Board of Directors and the holders of a majority of the
Series B Preferred Stock (or, if such selection cannot be agreed upon
promptly, or in any event within ten days, then such valuation shall be
made by a nationally recognized independent investment banking firm
selected by the American Arbitration Association in New York City in
accordance with its rules), the costs of which valuation shall be paid
for by the Corporation.
"First Closing Date" shall mean the date of the closing of the
purchase and sale of the Initial Preferred Shares.
"Fixed Conversion Price" is defined in Section 4(a).
"Initial Conversion Price" shall mean (i) with respect to the
Initial Preferred Shares, the lesser of (x) $1.03 and (y) 120% of the
average Closing Bid Price of the Common Stock for the five Trading Days
immediately prior to the First Closing Date and (ii) with respect to the
Additional Preferred Shares, the lesser of (x) the average Closing Bid
Price for the five Trading Days immediately prior to the Second Closing
Date and (y) the Market Price of the Common Stock as of the Second
Closing Date.
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<PAGE> 12
"Initial Preferred Shares" shall mean any shares of Series B
Preferred Stock issued on the date of the first issuance of any shares
of Series B Preferred Stock.
"Initial Reset Date" shall mean the 12-month anniversary of the
First Closing Date.
"Investment Agreement" shall mean the Preferred Stock and Warrant
Purchase Agreement dated as of February 16, 1999, by and among the
Corporation and the purchasers signatory thereto.
"Junior Stock" shall mean the Common Stock and any shares of
preferred stock of any series or class of the Corporation, whether
presently outstanding or hereafter issued, which are junior to the
shares of Series B Preferred Stock with respect to (i) the distribution
of assets on any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, (ii) dividends or (iii) voting.
"Market Price" shall mean the average Closing Bid Price for 20
consecutive Trading Days ending with the Trading Day prior to the date
as of which the Market Price is being determined (with appropriate
adjustments for subdivisions or combinations of shares effected during
such period), provided that if the prices referred to in the definition
of Closing Bid Price cannot be determined for such period, "Market
Price" shall mean Fair Market Value.
"Registered Holders" shall mean, at any time, the holders of
record of the Series B Preferred Stock.
"Reset Date" shall mean (i) with respect to the Initial Preferred
Shares, the Initial Reset Date and (ii) with respect to the Additional
Preferred Shares, the Second Reset Date.
"Reset Trading Price" shall mean (i) with respect to the Initial
Preferred Shares, the Market Price of the Common Stock as of the Initial
Reset Date and (ii) with respect to the Additional Preferred Shares, the
Market Price as of the Second Reset Date.
"Second Closing Date" shall mean the date of the closing of the
purchase and sale of the Additional Preferred Shares.
"Second Reset Date" shall mean the 12-month anniversary of the
Second Closing Date.
"Stock Market" shall mean, with respect to any security, the
principal national securities exchange on which such security is listed
or admitted to trading or, if such security is not listed or admitted to
trading on any national securities exchange, shall mean Nasdaq or, if
such security is not quoted on Nasdaq, shall mean the OTC Bulletin Board
or, if such security is not quoted on the OTC Bulletin Board, shall mean
the over-the-counter market as furnished by any NASD member firm
selected from time to time by the Corporation for that purpose.
A "Trading Day" shall mean a day on which the relevant Stock
Market is open for the transaction of business.
The "Variable Conversion Price" with respect to any conversion of
Series B Preferred Stock shall equal the average of the three lowest
Closing Bid Prices of the Common Stock during the 10 consecutive Trading
Days ending on the Trading Day preceding the effective date of such
conversion; provided that any of such Trading Days on which the
applicable converting holder has sold Common Stock on the Stock Market
shall be disregarded for purposes of determining such three lowest
Closing Bid Prices, and the Trading Day(s) with the next lowest Closing
Bid Price(s) of the Common Stock during such 10-Trading Day period shall
be substituted in lieu thereof.
2 Dividends and Distributions. (a) The holders of the Series B
Preferred Stock shall be entitled to receive cumulative dividends on each share
of Series B Preferred Stock at the rate of 5% per annum of the Dividend Base
Amount (as defined below), payable on every six-month and one-year anniversary
of the First Closing Date in arrears; provided, however, that on any day on
which the Common Stock trades below the Conversion Price Floor, the rate at
which such dividends accrue shall increase to 10% per annum. Such dividends
shall accrue daily based on a 360-day year consisting of 12 30-day months.
Such dividends shall be paid, at the option of the Corporation, in either (i)
cash
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<PAGE> 13
or (ii) shares of duly authorized, fully paid and non-assessable shares of
Common Stock. In calculating the number of shares of Common Stock to be paid
with respect to each dividend if payment in shares of Common Stock is elected
by the Corporation, each share of Common Stock shall be deemed to have the
value equal to the lower of (A) the Conversion Price (as defined in Section
4(a) hereof) or (B) the Market Price of the Common Stock at the time such
dividend is payable. Such dividends shall accrue and accumulate whether or not
they have been declared and whether or not there are profits, surplus or other
funds of the Corporation legally available for the payment of dividends. The
"Dividend Base Amount" shall be $100 plus all accrued but unpaid dividends on
the Series B Preferred Stock (subject to appropriate adjustment to reflect any
stock split, combination, reclassification or reorganization of the Series B
Preferred Stock).
(b) In addition to the foregoing, subject to the rights of the
holders of any shares of any series or class of capital stock ranking prior,
and superior to, or pari passu with, the shares of Series B Preferred Stock
with respect to dividends, the holders of shares of Series B Preferred Stock
shall be entitled to receive, as, when and if declared by the Board of
Directors, out of assets legally available for that purpose, dividends or
distributions in cash, stock or otherwise.
(c) The Corporation shall not declare any dividend or distribution
on any Junior Stock of the Corporation unless and until a special dividend or
distribution of $100.00 per share (subject to appropriate adjustment to reflect
any stock split, combination, reclassification or reorganization of the Series
B Preferred Stock), together with all accrued and unpaid dividends on the
Series B Preferred Stock, has been declared and paid on the Series B Preferred
Stock. Following payment in full of such special dividend or distribution, the
Corporation may declare dividends and distributions on Junior Stock or stock on
parity with the Series B Preferred Stock, provided that the Corporation shall
not declare any dividend or distribution on any Junior Stock or stock on parity
with the Series B Preferred Stock unless the Corporation shall, concurrently
with the declaration of such dividend or distribution on the Junior Stock or
stock on parity with the Series B Preferred Stock, declare a like dividend or
distribution, as the case may be, on the Series B Preferred Stock.
(d) Any dividend or distribution (other than that referenced in the
first sentence of Subsection 2(c)) payable to the holders of the Series B
Preferred Stock pursuant to this Section 2 shall be paid to such holders at the
same time as the dividend or distribution on the Junior Stock or any other
capital stock of the Corporation by which it is measured is paid.
(e) All dividends or distributions declared upon the Series B
Preferred Stock shall be declared pro rata per share.
(f) Any reference to "distribution" contained in this Section 2
shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
(g) No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series B
Preferred Stock which may be in arrears.
(h) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the Series
B Preferred Stock, for any period unless all dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series B Preferred
Stock. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, upon the shares of the Series B
Preferred Stock and any other class or series of stock ranking on a parity as
to dividends with the Series B Preferred Stock, all dividends declared upon
such other stock shall be declared pro rata so that the amounts of dividends
per share declared on the Series B Preferred Stock and such other stock shall
in all cases bear to each other the same ratio that accrued dividends per share
on the shares of the Series B Preferred Stock and on such other stock bear to
each other.
(i) So long as any shares of the Series B Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series B Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for
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<PAGE> 14
a sinking fund or otherwise for the purchase or redemption of any shares of any
such stock) by the Corporation unless the dividends, if any, accrued on all
outstanding shares of the Series B Preferred Stock shall have been paid or set
apart for payment.
3 Liquidation Preference. (a) In the event of a (i) liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (items (i),
(ii) and (iii) of this sentence being collectively referred to as a
"Liquidation Event"), after payment or provision for payment of debts and other
liabilities of the Corporation, the holders of the Series B Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, whether such assets
are capital, surplus, or earnings, before any payment or declaration and
setting apart for payment of any amount shall be made in respect of any Junior
Stock of the Corporation, an amount equal to (x) $100.00 per share plus an
amount equal to all declared and/or unpaid dividends thereon plus (y) the
amount by which any per share amount payable with respect to the Series B
Preferred Stock pursuant to Section 13 of this Certificate of Designations or
Section 7.28 of the Investment Agreement exceeds the amount set forth in (x)
less (z) the amount of any special dividend or distribution paid on the Series
B Preferred Stock pursuant to Section 2(c) (other than any dividend component
thereof, which shall be deemed to have been paid prior to any payment of the
$100 per share distribution referenced therein); provided, however, that in the
case of a Merger Transaction, such amount may be paid in cash, property (valued
as provided in Subsection 3(b)) and/or securities (valued as provided in
Subsection 3(b)) of the entity surviving such Merger Transaction. In the case
of property or in the event that any such securities are subject to an
investment letter or other similar restriction on transferability, the value of
such property or securities shall be determined by agreement between the
Corporation and the holders of a majority of the Series B Preferred Stock then
outstanding. If upon any Liquidation Event, whether voluntary or involuntary,
the assets to be distributed to the holders of the Series B Preferred Stock
shall be insufficient to permit the payment to such shareholders of the full
preferential amounts aforesaid, then all of the assets of the Corporation to be
distributed shall be so distributed ratably to the holders of the Series B
Preferred Stock on the basis of the number of shares of Series B Preferred
Stock held. All shares of Series B Preferred Stock shall rank as to payment
upon the occurrence of any Liquidation Event senior to the Common Stock and all
other series of the Corporation's preferred stock. Notwithstanding item (iii)
of the first sentence of this Subsection 3(a), any consolidation, merger,
combination, reorganization or other transaction in which the Corporation is
not the surviving entity but the stockholders of the Corporation immediately
prior to such transaction own in excess of 50% of the voting power of the
Corporation surviving such transaction and own such interest in substantially
the same proportions as prior to such transaction, shall not be considered a
Liquidation Event provided that the Corporation shall have made provision for
the issuance pursuant to such consolidation, merger, combination,
reorganization or other transaction of securities in replacement of the Series
B Preferred Stock having rights, preferences and privileges (including, without
limitation, an aggregate liquidation preference) equal to the outstanding
shares of Series B Preferred Stock immediately prior to such consolidation,
merger, combination, reorganization or other transaction.
(b) Any securities or other property to be delivered to the holders
of the Series B Preferred Stock pursuant to Subsection 3(a) hereof shall be
valued as follows:
(i) Securities not subject to an investment letter or other
similar restriction on free marketability:
(A) If actively traded on a Stock Market, the value
shall be deemed to be the Market Price as of the third day prior
to the date of valuation.
(B) If not actively traded on a Stock Market, the
value shall be the Fair Market Value.
(ii) For securities for which there is an active public
market but which are subject to an investment letter or other
restrictions on free marketability, the value shall be the Fair Market
Value thereof, determined by discounting appropriately the Market Price
thereof.
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<PAGE> 15
(iii) For all other securities or property, the value shall
be the Fair Market Value thereof.
4 Conversion.
(a) Right of Conversion. Subject to the limitations contained in
Section 7 and the limitations hereinafter set forth in this Section 4(a), the
shares of Series B Preferred Stock shall be convertible, in whole or in part,
at the option of the holder thereof and upon notice to the Corporation as set
forth in Subsection 4(b), into fully paid and non-assessable shares of Common
Stock and such other securities and property as hereinafter provided. At any
time, the conversion price per share of Common Stock (the "Conversion Price")
shall be equal to the lower of (i) the Variable Conversion Price and (ii) the
Fixed Conversion Price, as determined in accordance with the next paragraph.
The Fixed Conversion Price ("Fixed Conversion Price") shall initially be
equal to the Initial Conversion Price. If the Reset Trading Price is less than
the Initial Conversion Price, the Fixed Conversion Price (subject to adjustment
pursuant to the provisions of Subsection 4(c)) shall be adjusted and reset
effective as of the Reset Date (a "Reset Event"), to equal the greater of (x)
the Reset Trading Price and (y) 50% of the Initial Conversion Price. If there
is any change in the Fixed Conversion Price as a result of a Reset Event in
accordance with the preceding sentence, then the Corporation shall prepare a
certificate signed by the principal financial officer of the Corporation
setting forth the Fixed Conversion Price and the Conversion Rate in effect as
of the Reset Date, showing in reasonable detail the facts upon which such
Conversion Rate is based, and such certificate shall be mailed as promptly as
practicable (but in any event within 10 days) after the Reset Date by the
Corporation to all record holders of the Series B Preferred Stock at their last
addresses as they shall appear in the stock transfer books of the Corporation.
If the Conversion Price applicable on the effective date of any
conversion of Series B Preferred Stock is less than the Conversion Price Floor,
then, except as provided in the next succeeding paragraph, the Corporation
shall not be required to effect such conversion unless the holder of such
Series B Preferred Stock consents to conversion of such Series B Preferred
Stock at the Conversion Rate Ceiling. In such event, the Corporation shall, as
promptly as practicable (but in any event within three business days), notify
the holder of such Series B Preferred Stock that the Conversion Rate Ceiling is
in effect. The holder of such Series B Preferred Stock shall be deemed to have
revoked its conversion of such Series B Preferred Stock unless, within 15 days
of receipt of such notice, the holder delivers its written consent to
conversion of such Series B Preferred Stock at the Conversion Rate Ceiling to
the Corporation.
In the event that (a) the Common Stock trades at less than the
Conversion Price Floor on 60 or more Trading Days in any 12-month period
(irrespective of whether such Trading Days are consecutive), and (b) the
Conversion Price applicable to any conversion of Series B Preferred Stock that
is requested as of a date not later than the day following the 12-month
anniversary of the earliest of such 60 days is less than the Conversion Price
Floor, the Corporation shall either effect such conversion at the applicable
Conversion Price without regard to the immediately preceding paragraph or pay
to the holder of such Series B Preferred Stock, in cash, an amount (the "Cash
Pay-Out Amount") equal to the product of (x) the number of shares of Common
Stock that would otherwise be issuable upon conversion of the Series B
Preferred Stock at such lower Conversion Price and (y) the highest Closing
Trade Price for the Common Stock during the period commencing on the date of
the request for conversion and ending on the day immediately prior to the date
of payment of the Cash Pay-Out Amount. In no event shall the Cash Pay-Out
Amount be paid pursuant the preceding sentence more than 10 days after such
request for conversion.
The Corporation shall prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, of the Corporation setting forth the Fixed Conversion
Price, upon any adjustment thereto in connection with a Reset Event showing in
reasonable detail the facts upon which the Fixed Conversion Price is based, and
such certificate shall be mailed as promptly as practicable after the Reset
Date by the Corporation to all effected record holders of the Series B
Preferred Stock at their last addresses as they shall appear in the records of
the Corporation.
(b) Conversion Procedures. Any holder of shares of Series B
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series B
Preferred Stock at the office of the transfer agent (the "Transfer Agent") for
the Series B Preferred Stock, which certificate or certificates, if
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<PAGE> 16
the Corporation shall so require, shall be duly endorsed to the Corporation or
in blank, or accompanied by proper instruments of transfer to the Corporation
or in blank, accompanied by irrevocable written notice to the Corporation that
the holder elects so to convert such shares of Series B Preferred Stock and
specifying the name or names (with address) in which a certificate or
certificates evidencing shares of Common Stock are to be issued. The
Corporation need not deem a notice of conversion to be received unless the
holder complies with all the provisions hereof. The Corporation will instruct
the Transfer Agent (which may be the Corporation) to make a notation of the
date that a notice of conversion is received, which date shall be deemed to be
the date of receipt for purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such Transfer Agent to the person for whose account
such shares of Series B Preferred Stock were so surrendered, or to the nominee
or nominees of such person, certificates evidencing the number of full shares
of Common Stock to which such person shall be entitled as aforesaid, together
with a cash adjustment of any fraction of a share as hereinafter provided.
Subject to the following provisions of this paragraph, such conversion shall be
deemed to have been made as of the date of such surrender of the shares of
Series B Preferred Stock to be converted, and the person or persons entitled to
receive the Common Stock deliverable upon conversion of such Series B Preferred
Stock shall be treated for all purposes as the record holder or holders of such
Common Stock on such date; provided, however, that the Corporation shall not be
required to convert any shares of Series B Preferred Stock while the stock
transfer books of the Corporation are closed for any purpose, but the surrender
of Series B Preferred Stock for conversion during any period while such books
are so closed shall become effective for conversion immediately upon the
reopening of such books as if the surrender had been made on the date of such
reopening, and the conversion shall be at the conversion rate in effect on such
date. No adjustments in respect of any dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be
made upon the conversion of any shares of Series B Preferred Stock.
The Corporation shall at all times, reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series B Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series B Preferred Stock.
Except as provided in the third paragraph of Section 4(a), all notices
of conversion shall be irrevocable; provided, however, that if the Corporation
has sent notice of an event pursuant to Subsection 4(g) hereof, a holder of
Series B Preferred Stock may, at its election, provide in its notice of
conversion that the conversion of its shares of Series B Preferred Stock shall
be contingent upon the occurrence of the record date or effectiveness of such
event (as specified by such holder), provided that such notice of conversion is
received by the Corporation prior to such record date or effective date, as the
case may be.
(c) Adjustment of Conversion Rate and Conversion Price.
(i) Except as otherwise provided herein, in the event the
Corporation shall, at any time or from time to time after the date
hereof, (1) sell or issue any shares of Common Stock for a consideration
per share less than either (A) the then applicable Conversion Price
(taking into account the limitation set forth in the third paragraph of
Section 4(a)) in effect on the date of such sale or issuance or (B) the
Market Price of the Common Stock as of the date of such sale or
issuance, (2) issue any shares of Common Stock as a stock dividend to
all or substantially all the holders of Common Stock, or (3) subdivide
or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, for purposes of
determining the Conversion Price, the Initial Conversion Price or the
Reset Conversion Price, as applicable, in effect with respect to a share
of Series B Preferred Stock immediately prior to such Change of Shares
shall be adjusted to equal a price (rounded to the nearest cent)
determined by multiplying such Initial Conversion Price or Reset
Conversion Price, as applicable, by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the sale or issuance of such additional shares or
such subdivision or combination and the number of shares of Common Stock
which the aggregate consideration received (determined as provided
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<PAGE> 17
in Subparagraph 4(c)(v)(E)) for the issuance of such additional shares
would purchase at the greater of (x) the then applicable Conversion
Price (taking into account the limitation set forth in the third
paragraph of Section 4(a)) in effect on the date of such issuance or (y)
the Market Price of the Common Stock as of such date, and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after the sale or issuance of such additional
shares or such subdivision or combination. Such adjustment shall be
made successively whenever such an issuance is made.
(ii) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Corporation with or into another entity
(other than a consolidation or merger in which the Corporation is the
continuing entity and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common
Stock other than the number thereof), or in case of any sale or
conveyance to another entity of the property of the Corporation as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or
other financing transaction), the Corporation shall cause effective
provision to be made so that each holder of a share of Series B
Preferred Stock shall be entitled to receive, upon conversion of such
share of Series B Preferred Stock, at the option of the holder of such
share of Series B Preferred Stock, either (a) the kind and number of
shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock into which such share of Series B
Preferred Stock was convertible immediately prior to such
reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance or (b) in the case of any such
reclassification, capital reorganization or other change, consolidation
or merger, shares of common stock of the surviving entity in such
transaction, or in the case of any such sale or conveyance, shares of
common stock of the transferee in such transaction, at a conversion rate
determined by dividing the Conversion Price (determined by (1) taking
into account the trading price of the common stock of such surviving
entity or transferee for purposes of determining the Variable Conversion
Price, (2) in the case of any such reclassification, capital
reorganization, or other change, consolidation or merger, dividing the
Initial Conversion Price or the Reset Conversion Price, as applicable,
by the conversion ratio in such transaction, and effecting any
appropriate adjustment to take into account the receipt by holders of
Common Stock of any consideration other than common stock of such
surviving entity in such transaction and (3) in the event such
transaction takes place prior to the Reset Date, applying the reset
provisions of Section 4(a) to the trading price of the common stock of
the surviving entity or transferee in such transaction) into the sum of
(x) $100 plus (y) all accrued and unpaid dividends on such share of
Series B Preferred Stock. Any such provision shall include provision
for adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Subsection 4(c). The Corporation
shall not effect any such consolidation, merger or sale unless prior to
or simultaneously with the consummation thereof the successor (if other
than the Corporation) resulting from such consolidation or merger or the
entity purchasing assets or other appropriate entity shall assume, by
written instrument executed and delivered to the Transfer Agent, the
obligation to deliver to the holder of each share of Series B Preferred
Stock such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to receive and
the other obligations under this Agreement. The foregoing provisions
shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(iii) If, at any time or from time to time, the Corporation
shall issue or distribute to all or substantially all the holders of
shares of Common Stock evidence of its indebtedness, any other
securities of the Corporation or any cash, property or other assets
(excluding an issuance or distribution governed by one of the preceding
paragraphs of this Subsection 4(c) and also excluding cash dividends or
cash distributions paid out of retained earnings of the Corporation
determined under generally accepted accounting principles consistently
applied (any such non-excluded event being herein called a "Special
Dividend")), then in each case the holders of the Series B Preferred
Stock shall be entitled to a proportionate share of any such Special
Dividend as though they were the holders of the number of shares of
Common Stock into which their shares of Series B Preferred Stock are
convertible (without giving effect to the limitation set forth in the
third paragraph of Section 4(a)) as of the record date or effective
date, as the case may be, fixed for the determination of the holders of
Common Stock entitled to receive such Special Dividend.
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<PAGE> 18
(iv) After each adjustment of the Conversion Price pursuant
to this Subsection 4(c), the Corporation will promptly prepare a
certificate signed by the Chairman or President, and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary, of
the Corporation setting forth: (i) the Conversion Price as so adjusted,
(ii) the Conversion Rate corresponding to such Conversion and (iii) a
brief statement of the facts accounting for such adjustment. The
Corporation will promptly file such certificate with the Transfer Agent
and cause a brief summary thereof to be sent by ordinary first class
mail to each registered holder of Series B Preferred Stock at his or her
last address as it shall appear on the registry books of the Transfer
Agent. Neither failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity of such adjustment. The
affidavit of an officer of the Transfer Agent or the Secretary or an
Assistant Secretary of the Corporation that such notice has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. The Transfer Agent may rely on the information in the
certificate as true and correct and has no duty or obligation to verify
independently the amounts or calculations set forth therein.
(v) For purposes of Paragraph 4(c)(i) hereof, the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock deemed
outstanding at any given time shall include all shares of capital
stock convertible into, or exchangeable for, Common Stock (on an
as converted basis) as well as all shares of Common Stock
issuable upon the exercise of (x) any convertible debt, (y)
warrants outstanding on such date and (z) options outstanding on
such date.
(B) No adjustment of the Initial Conversion Price or
the Reset Conversion Price shall be made unless such adjustment
would require an increase or decrease of at least $.01 in such
price; provided that any adjustments which by reason of this
Subparagraph (B) are not required to be made shall be carried
forward and shall be made at the time of and together with the
next subsequent adjustment which, together with adjustments so
carried forward, shall require an increase or decrease of at
least $.01 in the Initial Conversion Price or the Reset
Conversion Price, as the case may be, then in effect.
(C) In case of (1) the sale or other issuance by the
Corporation (including as a component of a unit) of any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock (such securities convertible,
exercisable or exchangeable into Common Stock being herein called
"Convertible Securities"), or (2) the issuance by the
Corporation, without the receipt by the Corporation of any
consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, whether or not such rights, warrants
or options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the consideration
per share for which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration, as set forth in the
instrument relating thereto without regard to any antidilution or
similar provisions contained therein for a subsequent adjustment
of such amount, payable to the Corporation upon the exercise of
such rights, warrants or options, plus the consideration received
by the Corporation for the issuance or sale of such rights,
warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount, as set forth in the
instrument relating thereto without regard to any antidilution or
similar provisions contained therein for a subsequent adjustment
of such amount, of additional consideration, if any, other than
such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number, as set forth
in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities
issuable upon the exercise of such rights, warrants or options)
is less than either the Conversion Price (taking into account the
limitation set forth in the third paragraph of Section 4(a)) or
the Closing Bid Price of the Common Stock as of the date of the
issuance or sale of such rights, warrants or options, then such
total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (as of the
date of the issuance or sale of such rights, warrants or options)
shall be deemed to be
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<PAGE> 19
"Common Stock" for purposes of Paragraph 4(c)(i) and shall be
deemed to have been sold for an amount equal to such
consideration per share and shall cause an adjustment to be made
in accordance with Paragraph 4(c)(i).
(D) In case of the sale by the Corporation of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing
(x) the total amount of consideration received by the Corporation
for the sale of such Convertible Securities, plus the minimum
aggregate amount, as set forth in the instrument relating thereto
without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by
(y) the total maximum number, as set forth in the instrument
relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such
amount, of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than either the
Conversion Price (taking into account the limitation set forth in
the third paragraph of Section 4(a)) or the Market Price of the
Common Stock as of the date of the sale of such Convertible
Securities, then such total maximum number of shares of Common
Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be "Common Stock" for
purposes of Paragraph 4(c)(i) and shall be deemed to have been
sold for an amount equal to such consideration per share and
shall cause an adjustment to be made in accordance with Paragraph
4(c)(i).
(E) In case the Corporation shall modify the rights of
conversion, exchange or exercise of any of the securities
referred to in (C) and (D) above or any other securities of the
Corporation convertible, exchangeable or exercisable for shares
of Common Stock, for any reason other than an event that would
require adjustment to prevent dilution, so that the consideration
per share received by the Corporation after such modification is
less than either the Conversion Price (taking into account the
limitation set forth in the third paragraph of Section 4(a)) or
the Market Price as of the date prior to such modification, then
such securities, to the extent not theretofore exercised,
converted or exchanged, shall be deemed to have expired or
terminated immediately prior to the date of such modification and
the Corporation shall be deemed for purposes of calculating any
adjustments pursuant to this Subsection 4(c) to have issued such
new securities upon such new terms on the date of modification.
Such adjustment shall become effective as of the date upon which
such modification shall take effect. On the expiration or
cancellation of any such right, warrant or option or the
termination or cancellation of any such right to convert or
exchange any such Convertible Securities, the Initial Conversion
Price or Reset Conversion Price, as applicable, then in effect
hereunder shall forthwith be readjusted to such Initial
Conversion Price or Reset Conversion Price, as the case may be,
as would have obtained (a) had the adjustments made upon the
issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered
(and the total consideration received therefor) upon the exercise
of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities and (b) had adjustments
been made on the basis of the Initial Conversion Price or Reset
Conversion Price, as the case may be, as adjusted under item (a)
of this sentence for all transactions (which would have affected
such adjusted Initial Conversion Price or Reset Conversion Price,
as the case may be) made after the issuance or sale of such
rights, warrants, options or Convertible Securities.
(F) In case of the sale of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, the consideration received by the
Corporation therefor shall be deemed to be the gross sales price
therefor without deducting therefrom any expense paid or incurred
by the Corporation or any underwriting discounts or commissions
or concessions paid or allowed by the Corporation in connection
therewith. In the event that any securities shall be issued in
connection with any other securities of the Corporation, together
comprising one integral transaction in which no specific
consideration is allocated among the securities, then each of
such securities shall be deemed to have been issued for such
consideration as the Board of Directors of the Corporation
determines in good faith; provided, however, that if the
Registered Holders of in excess of
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<PAGE> 20
10% of the then outstanding Series B Preferred Stock disagree
with such determination, the Corporation shall retain, at its own
expense, an independent investment banking firm for the purpose
of obtaining an appraisal.
(vi) Notwithstanding any other provision hereof, no
adjustment to the Conversion Price will be made:
(A) upon the exercise of any of the options
outstanding on the date hereof under the Corporation's existing
stock option plans; or
(B) upon the issuance or exercise of options which may
hereafter be granted with the approval of the Board of Directors
and consented to by the holders of Series B Preferred Stock, or
their representatives, in accordance with the Investment
Agreement, or exercised, under any employee benefit plan of the
Corporation to officers, directors or employees, but only with
respect to such options as are exercisable at prices no lower
than the Market Price of the Common Stock as of the date of grant
thereof; or
(C) upon issuance or exercise of the Unit Purchase
Option for the Purchase of Shares of Preferred Stock and Warrants
(the "Unit Purchase Option") issued to Paramount Capital, Inc. in
connection with the issuance and sale of the Series B Preferred
Stock pursuant to the Investment Agreement or upon the issuance,
conversion or exercise of (i) the Series B Preferred Stock issued
pursuant to the Investment Agreement (ii) the shares of Common
Stock or Series B Preferred Stock issuable upon exercise of the
Unit Purchase Option or (iii) the Class L Warrants issued
pursuant to the Investment Agreement; or
(D) upon the issuance or sale of Common Stock or
Convertible Securities pursuant to the exercise of any rights,
options or warrants to receive, subscribe for or purchase, or any
options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were
outstanding on the date of the original issuance of the Series B
Preferred Stock or were thereafter issued or sold, provided that
an adjustment was either made or not required to be made in
accordance with Paragraph 4(c)(i) in connection with the issuance
or sale of such securities or any modification of the terms
thereof; or
(E) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, provided
that any adjustments required to be made upon the issuance or
sale of such Convertible Securities or any modification of the
terms thereof were so made, and whether or not such Convertible
Securities were outstanding on the date of the original sale of
the Series B Preferred Stock or were thereafter issued or sold.
Subparagraph 4(c)(v)(E) shall nevertheless apply to any modification of the
rights of conversion, exchange or exercise of any of the securities referred to
in Subparagraphs (A), (B) and (C) of this Paragraph 4(c)(vi).
(vii) As used in this Subsection 4(c), the term "Common
Stock" shall mean and include the Corporation's Common Stock authorized
on the date of the original issue of the Series B Preferred Stock and
shall also include any capital stock of any class of the Corporation
thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to
participate in dividends and in the distribution of assets upon the
voluntary liquidation, dissolution or winding up of the Corporation;
provided, however, that the shares issuable upon conversion of the
Series B Preferred Stock shall include only shares of such class
designated in the Certificate of Incorporation as Common Stock on the
date of the original issue of the Series B Preferred Stock or (i), in
the case of any reclassification, change, consolidation, merger, sale or
conveyance of the character referred to in Paragraph 4(c)(ii) hereof,
the stock, securities or property provided for in such section or (ii),
in the case of any reclassification or change in the outstanding shares
of Common Stock issuable upon conversion of the Series B Preferred Stock
as a result of a subdivision or combination or consisting of a change in
par value, or from par value to no par value, or from no par value to
par value, such shares of Common Stock as so reclassified or changed.
(d) No Fractional Shares. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon conversion
of Series B Preferred Stock. If more than one certificate evidencing shares of
Series B
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<PAGE> 21
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series B Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any shares of Series B Preferred
Stock, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the same fraction of the Market Price
of the Common Stock as of the close of business on the day of conversion.
(e) Reservation of Shares; Transfer Taxes, Etc. The Corporation
shall at all times reserve and keep available, out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series B Preferred Stock, such number of shares of its Common
Stock free of preemptive rights as shall be sufficient to effect the conversion
of all shares of Series B Preferred Stock from time to time outstanding
(including, without limitation, shares of Common Stock issuable upon conversion
of the Series B Preferred Stock in the case of a reset of the Initial
Conversion Price in accordance with Section 4(a)). The Corporation shall use
its best efforts from time to time, in accordance with the laws of the State of
Delaware to increase the authorized number of shares of Common Stock if at any
time the number of shares of authorized, unissued and unreserved Common Stock
shall not be sufficient to permit the conversion of all the then-outstanding
shares of Series B Preferred Stock.
The Corporation shall pay any and all issue or other taxes that may be payable
in respect of any issue or delivery of shares of Common Stock on conversion of
the Series B Preferred Stock. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issue or delivery of Common Stock (or other securities or assets) in a name
other than that in which the shares of Series B Preferred Stock so converted
were registered, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation the amount of such
tax or has established, to the satisfaction of the Corporation, that such tax
has been paid.
(f) Prior Notice of Certain Events. In case:
(viii) the Corporation shall declare any dividend (or any
other distribution); or
(ix) the Corporation shall authorize the granting to all or
substantially all the holders of Common Stock of rights or warrants to
subscribe for or purchase any shares of stock of any class or of any
other rights or warrants; or
(x) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value to
par value); or
(xi) of any consolidation or merger (including, without
limitation, a Merger Transaction) to which the Corporation is a party
and for which approval of any stockholders of the Corporation shall be
required, or of the sale or transfer of all or substantially all of the
assets of the Corporation or of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or other
property; or
(xii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation (including, without
limitation, a Liquidation Event);
then the Corporation shall cause to be filed with the Transfer Agent for the
Series B Preferred Stock, and shall cause to be mailed to the Registered
Holders, at their last addresses as they shall appear upon the stock transfer
books of the Corporation, at least 20 days prior to the applicable record date
or effective date hereinafter specified, a notice stating (x) the date on which
a record (if any) is to be taken for the purpose of such dividend, distribution
or granting of rights or warrants or, if a record is not to be taken, the date
as of which all or substantially all the holders of Common Stock of record to
be entitled to such dividend, distribution, rights or warrants are to be
determined and a description of the cash, securities or other property to be
received by such holders upon such dividend, distribution or granting of rights
or warrants or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
or other Liquidation Event is expected to become effective, the date as of
which
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<PAGE> 22
it is expected that such holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such exchange, dissolution, liquidation or winding up or other
Liquidation Event and the consideration, including securities or other
property, to be received by such holders upon such exchange; provided, however,
that no failure to mail such notice or any defect therein or in the mailing
thereof shall affect the validity of the corporate action required to be
specified in such notice.
(g) Other Changes in Conversion Rate. The Corporation from time to
time may increase the Conversion Rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the Conversion Rate is so increased, the Corporation shall
mail to the Registered Holders a notice of the increase at least 15 days before
the date the increased Conversion Rate takes effect, and such notice shall
state the increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion Rate, in addition to
those required or allowed by this Section 4, as shall be determined by it, as
evidenced by a resolution of the Board of Directors, to be advisable in order
to avoid or diminish any income tax to holders of Common Stock resulting from
any dividend or distribution of stock or issuance of rights or warrants to
purchase or subscribe for stock or from any event treated as such for income
tax purposes.
(h) Ambiguities/Errors. Except as otherwise provided herein, the
Board of Directors of the Corporation shall have the power to resolve any
ambiguity or correct any error in the provisions relating to the convertibility
of the Series B Preferred Stock that shall not be adverse to the holders of
Series B Preferred Stock, and its actions in so doing shall be final and
conclusive absent manifest error.
5. Mandatory Conversion. (a) At any time on or after the later of
the Initial Reset Date and the date the registration statement to be filed
pursuant to Section 8 of the Investment Agreement becomes effective, the
Corporation at its option, may cause the Initial Preferred Shares to be
converted in whole or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock at the then effective Conversion Rate and
such other securities and property as herein provided if the Closing Trade
Price of the Common Stock shall have exceeded 300% of the Reset Conversion
Price on 20 Trading Days during any 30-Trading-Day period ending on the Trading
Day prior to the date notice of mandatory conversion is given to the holders of
the Initial Preferred Shares. Any shares of Series B Preferred Stock so
converted shall be treated as having been surrendered by the holder thereof for
conversion pursuant to Section 4 on the date of such mandatory conversion
(unless previously converted at the option of the holder).
(b) At any time on or after the later of the Second Reset Date and
the date the registration statement to be filed pursuant to Section 8 of the
Investment Agreement becomes effective, the Corporation at its option, may
cause the Additional Preferred Shares to be converted in whole or in part, on a
pro rata basis, into fully paid and nonassessable shares of Common Stock at the
then effective Conversion Rate and such other securities and property as herein
provided if the Closing Trade Price of the Common Stock shall have exceeded
300% of the Reset Conversion Price on 20 Trading Days during any 30-Trading-Day
period ending on the Trading Day prior to the date notice of mandatory
conversion is given to the holders of the Additional Preferred Shares. Any
shares of Series B Preferred Stock so converted shall be treated as having been
surrendered by the holder thereof for conversion pursuant to Section 4 on the
date of such mandatory conversion (unless previously converted at the option of
the holder).
(c) (i) No greater than 60 nor fewer than 20 days prior to the
date of any such mandatory conversion, notice by first class mail, postage
prepaid, shall be given to the holders of record of the Series B Preferred
Stock to be converted, addressed to such holders at their last addresses as
shown on the stock transfer books of the Corporation. Each such notice shall
specify the date fixed for conversion, the place or places for surrender of
shares of Series B Preferred Stock, and the then effective Conversion Rate
pursuant to Section 4.
(ii) Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given by the Corporation on the
date deposited in the mail, whether or not the holder of the Series B
Preferred Stock receives such notice; and failure properly to give such
notice by mail, or any defect in such notice, to the holders of the
shares to be converted shall not affect the validity of the proceedings
for the conversion of any other shares
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<PAGE> 23
of Series B Preferred Stock. On or after the date fixed for conversion
as stated in such notice, each holder of shares called to be converted
shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice for conversion.
Notwithstanding that the certificates evidencing any shares properly
called for conversion shall not have been surrendered, the shares shall
no longer be deemed outstanding and all rights whatsoever with respect
to the shares so called for conversion (except the right of the holders
to convert such shares upon surrender of their certificates therefor)
shall terminate.
6. Voting Rights.
(a) General. Except as otherwise provided herein, in the
Certificate of Incorporation or the By-laws of the Corporation, the holders of
shares of Series B Preferred Stock, the holders of shares of Common Stock and
the holders of any other class or series of shares entitled to vote with the
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation. In any such vote, each share of
Series B Preferred Stock shall entitle the holder thereof to cast the number of
votes equal to the number of votes which could be cast in such vote by a holder
of the Common Stock into which such share of Series B Preferred Stock is
convertible (without regard to the limitations set forth in the third paragraph
of Section 4(a)) on the record date for such vote or if no record date has been
established, on the date such vote is taken. Any shares of Series B Preferred
Stock held by the Corporation or any entity controlled by the Corporation shall
not have voting rights hereunder and shall not be counted in determining the
presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in
Section 6(a), the Corporation shall not, without the affirmative vote or
consent of the holders of at least a majority of all outstanding Series B
Preferred Stock voting separately as a class, (i) amend, alter or repeal any
provision of the Certificate of Incorporation or Bylaws of the Corporation so
as adversely to affect the relative rights, preferences, qualifications,
limitations or restrictions of the Series B Preferred Stock, (ii) approve the
alteration or change to the rights, preferences or privileges of the Series B
Preferred Stock, (iii) authorize or issue, or increase the authorized amount of
any security ranking prior to, or on a parity with, the Series B Preferred
Stock (A) upon a Liquidation Event, (B) with respect to the payment of any
dividends or distributions or (C) with respect to voting rights (except for
class voting rights required by law); or (iv) approve the incorporation of any
subsidiary company.
7. Limitation on Holder's Right to Convert or Vote. (a)
Notwithstanding anything to the contrary contained in Section 4 or Section 6,
no share of Series B Preferred Stock may be converted or voted by a holder to
the extent that, after giving effect to such conversion or vote, the total
number of shares of Common Stock beneficially owned by such holder, together
with all Common Shares deemed beneficially owned by the holder or any other
person or entity that would be aggregated for purposes of determining whether a
"group" exists under Section 13(d) of the Securities Exchange Act of 1934, as
amended, would exceed 4.9 of the total issued and outstanding shares of Common
Stock, provided that each holder shall have the right to waive this
restriction, in whole or in part, upon 61 days prior notice to the Corporation.
A transferee of shares of Series B Preferred Stock shall not be bound by this
provision unless it expressly agrees to be so bound.
(b) The Corporation shall not be obligated to issue, in the
aggregate, more than 4,539,582 shares of Common Stock as presently constituted
(the "NASD Cap") upon conversion of the Series B Preferred if issuance of a
larger number of shares would constitute a breach of the rules of the NASD.
Subject to the obligation to effect certain redemptions pursuant to the last
four sentences of this paragraph, if further issuances of shares of Common
Stock upon conversion of the Series B Preferred would constitute a breach of
the rules of the NASD (i.e., all of the shares permitted to be issued under the
NASD Cap shall have been so issued), then so long thereafter as such limitation
shall continue to be applicable, in the event any shares of Series B Preferred
Stock are submitted for conversion, such shares shall receive in cash an amount
equal to the Cash Pay-Out Amount (as defined in Section 4(a) hereof), in lieu
of the Common Stock which such shares would otherwise be entitled to receive
upon conversion. Payment of the Cash Pay-Out Amount shall be made no later than
10 days after such conversion would otherwise be effective and shall bear daily
interest from the date such conversion would otherwise be effective at the rate
of one-tenth of one percent per day until paid. The NASD Cap shall be
proportionately and equitably adjusted in the event of stock splits, stock
dividends, reverse stock splits, reclassifications or other such events, in
such manner as the Board of Directors of the Corporation shall
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<PAGE> 24
reasonably determine. If (A) the Corporation is unable to (1) commence its
annual meeting of shareholders by May 28, 1999 and (2) obtain the requisite
shareholder approval concerning the issuance of shares of Common Stock upon
conversion of the Series B Preferred and exercise of the Warrants issued
pursuant to the Investment Agreement to satisfy the rules of the NASD at such
meeting or within 30 days of the commencement of such meeting (it being
understood that the Corporation shall use its best efforts to obtain such
shareholder approval by such dates), then the Corporation shall immediately
redeem the remaining shares of Series B Preferred Stock as provided in Section
13 of this Certificate of Designations. If there shall be a default in payment
of the redemption price pursuant to this Section, the amount so payable shall
bear daily interest from and after the date of such redemption at the rate of
one-twentieth of one percent per day until paid.
8. Outstanding Shares. For purposes of this Certificate of
Designations, a share of Series B Preferred Stock, when issued, shall be deemed
outstanding except (i) from the date, or the deemed date, of surrender of
certificates evidencing shares of Series B Preferred Stock, all shares of
Series B Preferred Stock converted into Common Stock and (ii) from the date of
registration of transfer, all shares of Series B Preferred Stock held of record
by the Corporation or any subsidiary of the Corporation.
9. Status of Acquired Shares. Shares of Series B Preferred Stock
received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series B Preferred Stock.
10. Preemptive Rights. The Series B Preferred Stock is not entitled
to any preemptive or subscription rights in respect of any securities of the
Corporation.
11. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such changes
as shall be necessary to render the provision in question effective and valid
under applicable law.
12. No Amendment or Impairment. The Corporation shall not
participate in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, for the
purpose of avoiding or seeking to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in carrying out all such action as may be
reasonably necessary or appropriate in order to protect the rights of the
holders of the Series B Preferred Stock against impairment. Nothing in this
Section 12 shall limit the right of the Corporation to amend its Certificate of
Incorporation in conformity with the other applicable provisions of this
Certificate of Designations.
13. Additional Redemption Events. In the event (i) the Corporation
fails to (a) timely file the registration statement required to be filed
pursuant to Section 8 of the Investment Agreement or maintain the effectiveness
of such registration statement in accordance with such provision, or (b) obtain
the shareholder approval required by Section 7(b) of this Certificate of
Designations on or prior to the dates specified therein, (ii) the Corporation
materially breaches any other provision of the Investment Agreement and such
breach continues for 20 days after notice thereof to the Corporation by any
holder of Series B Preferred Stock, (iii) any class of equity securities of the
Corporation that is at any time on or after the First Closing Date listed or
quoted on any Stock Market ceases to be so listed or quoted on such Stock
Market, (iv) the Corporation fails to deliver any of the shares of Series B
Preferred Stock or Class L Warrants sold pursuant to the Investment Agreement
in accordance with the terms thereof, (v) the Corporation receives an audit
opinion with respect to any audited financial statement that contains a
material limitation or qualification (including, without limitation, any going
concern qualification) or (vi) any Liquidation Event occurs (each of the
foregoing a "Redemption Event"), then, in each case, the Corporation shall be
required to (in the case of the Redemption Events specified in clauses (i),
(iv) and (vi)) or shall at the election of any holder of Series B Preferred
Stock (in the case of the
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<PAGE> 25
Redemption Events specified in clauses (ii), (iii) and (v)) redeem all or any
portion of the shares of Series B Preferred Stock held by such holder for cash
at a price equal to 120% of the stated value thereof. In the event the
Corporation does not have sufficient funds to effect such redemption in full
(it being understood that such redemption shall be effected on a pro rata basis
with respect to all holders of Series B Preferred Stock electing redemption in
response to any Redemption Event), the Corporation shall apply such funds as
are available to it (including, without limitation, pursuant to the escrow
established by the Corporation for such purpose pursuant to Section 7.6(b) of
the Investment Agreement) to such redemption and the remainder of the
Corporation's redemption obligation to such holders shall thereafter be
represented by a promissory note bearing interest at the rate of 18% per annum
and which shall be secured by a security agreement covering substantially all
of the assets of the Corporation, which promissory note and security agreement
shall be in form and substance satisfactory to the "Purchaser Representative"
elected in accordance with Section 11.3 of the Investment Agreement in the sole
discretion of the Purchaser Representative. In connection therewith, the
Corporation shall make all filings and recordings of Uniform Commercial Code
financing statements and such documents and, if any, necessary or advisable, in
the discretion of the Purchaser Representative, including, without limitation,
the filings of financing statements in Ohio against the Corporation's accounts
that may be held there, in each case so as to establish and perfect the
holders' rights, title and interests in and to the assets of the Corporation
subject to the security agreement. The Corporation shall give written notice of
any Redemption Event to the holders of record of the Series B Preferred Stock
and to the Purchaser Representative within five days after such Redemption
Event.
14. Certain Legends. Each certificate or document evidencing any
share of Series B Preferred Stock shall bear a legend indicating (a) whether
such share is an Initial Preferred Share or Additional Preferred Share, as the
case may be, (b) that, depending on whether such share is an Initial Preferred
Share or Additional Preferred Share, such share has differing rights, including
the applicable Conversion Rate and (c) that such shares are subject to the
terms and conditions of this Certificate of Designations, a copy of which is on
file with the Company and the Transfer Agent, which shall be provided to the
holder of such share upon request and without charge.
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<PAGE> 1
Exhibit 4.4
AMENDMENT NUMBER 1 TO THE RIGHTS AGREEMENT
This Amendment Number 1 ("Amendment") to the Rights Agreement
("Agreement") between Neoprobe Corporation, a Delaware corporation ("Company"),
and Continental Stock Transfer & Trust Company ("Rights Agent") is dated as of
February 16, 1999.
WHEREAS, the Company and the Rights Agent entered into the Agreement on
July 18, 1995 in connection with a rights dividend declared by the board of
directors of the Company; and
WHEREAS, the Company and the Rights Agent desire to amend the Agreement
in order to provide for the sale and issuance of a new series of convertible
preferred stock of the Company and warrants to purchase common stock of the
Company, par value $.001, in order to raise funds for the Company.
NOW THEREFORE, the Company and the Rights Agent hereby agree to amend
the Agreement as follows:
1. The definition of "Acquiring Person" contained in Section 1.(a)
of the Agreement is hereby deleted in its entirety and the following language
be inserted in lieu thereof:
"Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the Common Stock then
outstanding, but shall not include (i) the Company, (ii) any
Subsidiary of the Company, (iii) any employee benefit plan of the
Company or of any Subsidiary of the Company, (iv) any Person
organized, appointed or established by the Company for or
pursuant to the terms of any such plan, or (v) any Person who
becomes a Beneficial Owner of 15% or more of the Common Stock
then outstanding solely because such Person or its affiliates and
associates (1) acquired shares of 5% Series B Convertible
Preferred Stock, par value $.001 per share, stated value $100 per
share ("Series B Preferred Stock"), of the Company from the
Company, (2) acquired Class L Warrants of the Company ("Class L
Warrants") from the Company (3) acquired options ("Advisory
Options") to purchase shares of Series B Preferred Stock and
Class L Warrants from the Company pursuant to the Financial
Advisory Agreement between the Company and Paramount Capital,
Inc. dated February 16, 1999, (4) acquired Common Stock through
the conversion of Series B Convertible Preferred Stock, which
such Person purchased directly from the Company, through the
exercise of Class L Warrants or Advisory Warrants, which such
Person obtained directly from the Company, through a Common Stock
dividend on shares of Series B Preferred Stock declared by the
Company or any other issuance of Common Stock in respect of the
Series B Preferred Stock or Class L Warrants (including the
shares of Series B Preferred Stock and Class L Warrants
underlying the Advisory Options), pursuant to the terms of the
Certificate of Designations of 5% Series B Preferred Convertible
Preferred Stock of Neoprobe Corporation ("Certificate of
Designations"), pursuant to any provision of the Class L Warrants
or pursuant to any provision of the Preferred Stock and Warrant
Purchase Agreement ("Purchase Agreement") dated February 16, 1999
by and among the Company, The Aries Master Fund, a Cayman Island
Exempted Company ("Master Fund"), and The Aries Domestic Fund,
L.P. ("Domestic Fund"), and the agreements referred to therein,
or (5) is the Master Fund or the Domestic Fund or their
respective affiliates or associates unless such entities acquire
more than an aggregate of 1,000,000 shares of Common Stock (such
number to be adjusted to reflect the effect of stock splits,
stock dividends and similar events affecting Common Stock after
the date of Amendment No. 1 to this Rights Agreement) in addition
to acquisitions otherwise described in clauses (v)(1), (v)(2),
(v)(3) and (v)(4) of this paragraph.
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<PAGE> 2
2. The definition of "Section 11(a)(ii) Event" contained in Section
1.(a) of the Agreement is hereby deleted in its entirety and the following
language be inserted in lieu thereof:
"Section 11(a)(ii) Event" shall have the meaning set forth in Section
11(a)(ii) hereof.
Section 11(a)(ii) of the Agreement is hereby deleted in its entirety and
the following language be inserted in lieu thereof:
Section 11. (a)(ii) If any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or
entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan), alone or together with
its Affiliates and Associates at any time after the Rights
Dividend Declaration Date, becomes a Beneficial Owner of 15% or
more of the Common Stock then outstanding, a "Section 11(a)(ii)
Event" shall be deemed to have occurred; unless the event causing
the 15% threshold to be crossed
(1) is a Section 13 Event;
(2) is an acquisition of Common Stock pursuant to a
tender offer or an exchange offer for all outstanding
Common Stock at a price and on terms determined by at
least a majority of the members of the Board of Directors
who are not officers of the Company and who are not
representatives, nominees, Affiliates or Associates of an
Acquiring Person, after receiving advice from one or more
investment banking firms, to be (A) at a price which is
fair to stockholders (taking into account all factors
which such members of the Board deem relevant including,
without limitation, prices which could reasonably be
achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and (B)
otherwise in the best interests of the Company and its
stockholders;
(3) (i) is the acquisition of Series B Preferred Stock
and Series B Preferred Stock Warrants from the Company,
(ii) is the conversion of Series B Preferred Stock into
Common Stock by a Person who purchased the shares of
Series B Preferred Stock directly from the Company, (iii)
is the purchase of Common Stock by the exercise of Class L
Warrants, which were obtained by the Persons exercising
them directly from the Company, (iv) is the acquisition of
Common Stock by conversion of Series B Preferred Stock and
exercise of Class L Warrants issuable upon exercise of the
Advisory Options, (v) is the acquisition of Common Stock
pursuant to any provision of the Purchase Agreement and
the agreements referred to therein, (vi) is the
acquisition of Common Stock through a Common Stock
dividend on shares of Series B Preferred Stock declared by
the Company or any other issuance of Common Stock in
respect of the Series B Preferred Stock or the Series B
Preferred Stock Warrants pursuant to the terms of the
Certificate of Designations, or (vii) the acquisition of
up to an aggregate of 1,000,000 shares of Common Stock,
such number to be adjusted to reflect stock splits, stock
dividends and similar events affecting Common Stock
occurring after the date of Amendment No. 1 to this Rights
Agreement, by the Master Fund or the Domestic Fund or any
of their respective affiliates and associates in addition
to acquisitions described in clauses (i), (ii), (iii),
(iv), (v) and (vi) of this Section 11(a)(ii)(3).
Promptly following the first occurrence of any Section 11(a)(ii)
Event, proper provision shall be made so that each holder of a
Right (except as provided below and in Section 7(e) hereof) shall
thereafter have the right to receive, upon exercise thereof at
the then current Purchase Price in accordance with the terms of
this Agreement, in lieu of Preferred Stock or fractions thereof,
such number of shares of Common Stock of the Company as shall
equal the result obtained by (I) multiplying the then current
Purchase Price by the then number of shares of Preferred Stock or
fractions thereof for which a Right was exercisable immediately
prior to the first occurrence of a Section 11(a)(ii) Event, and
(II) dividing that product (which, following such first
occurrence, shall thereafter be referred to as
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<PAGE> 3
the "Purchase Price" for each Right and for all purposes of this
Agreement) by 50% of the current market price (determined
pursuant to Section 11(d) hereof) per shares of Common Stock on
the date of such first occurrence (such number of shares, the
"Adjustment Stock").
3. Except as specifically amended by this Amendment, the provisions
of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
NEOPROBE CORPORATION
By: /s/ David C. Bupp
------------------------------------------
David C. Bupp, Chief Executive Officer
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By: /s/ William F. Seegraber
------------------------------------------
Print Name: William F. Seegraber
----------------------------------
Print Title: Vice President
---------------------------------
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<PAGE> 1
Exhibit 10.1.32
EXECUTION COPY
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") dated
as of February 16, 1999, by and among NEOPROBE CORPORATION, a Delaware
corporation (the "Company"), and the PURCHASERS listed on Exhibit A
("Purchasers").
The Company desires to issue and sell to Purchasers, and
Purchasers desire to purchase from the Company, shares (the "Preferred
Shares"), of 5% Series B Convertible Preferred Stock, par value $.001 per
share, stated value $100 per share, of the Company ("Preferred Stock"), having
the rights, designations and preferences set forth in the Certificate of
Designations of the Company (the "Certificate of Designations") in the
identical form and substance of Exhibit B, upon and subject to the terms and
conditions of this Agreement. Unless the context otherwise requires, the term
"Preferred Shares" shall include (i) all shares of Preferred Stock issued or
issuable at the First Closing and the Second Closing (in each case as defined
below) and (ii) all shares of Preferred Stock that may be issuable upon
exercise of the Unit Purchase Option (as defined in Section 5.21).
Pursuant to the terms of the Certificate of Designations, the
Preferred Shares will be convertible into shares ("Common Shares") of common
stock, par value $.001 per share, of the Company ("Common Stock"), and pursuant
to the terms of this Agreement, the Purchasers will have registration rights
with respect to the Common Shares issuable upon such conversion and upon
exercise of the Warrants (as defined below).
To induce Purchasers to purchase the Preferred Shares, the
Company shall issue to the Purchasers warrants to purchase shares of Common
Stock in the form attached as Exhibit C (the "Warrants"). Unless the context
otherwise requires, the term Common Shares shall be deemed to include any
shares of Common Stock issued or issuable upon conversion of Preferred Shares,
including those that may be issued as a dividend pursuant to the Certificate of
Designations and any shares of Common Stock issuable upon exercise of the
Warrants.
Accordingly, in consideration of the premises and the mutual
agreements contained herein, and for other good and valuable consideration,
Purchasers and the Company agree as follows:
1. Purchase of Company Securities.
1.1. Purchase and Sale of the Preferred Shares and the
Warrants. (a) Subject to the terms and conditions of this Agreement, (i) the
Company shall issue and sell to Purchasers, and Purchasers, severally and not
jointly, shall purchase from the Company, the aggregate number of shares of
Preferred Stock (the "Initial Preferred Shares") set forth on Exhibit A
(allocated among the Purchasers as set forth on Exhibit A), and (ii) the
Company shall issue to Purchasers the aggregate number of Warrants (the
"Initial Warrants") set forth on Exhibit A (allocated among the Purchasers as
set forth on Exhibit A) at the First Closing (as such term is defined in
Section 2.1). The aggregate purchase price for the Initial Preferred Shares
shall be $3,000,000 (the "Initial Purchase Price") (allocated among the
Purchasers as set forth on Exhibit A). "Operative Documents" shall mean this
Agreement, the Warrants and the Certificate of Designations.
(b) Subject to the terms and conditions of this Agreement, and provided that
the Required Shareholder Approvals have been obtained and the Shelf
Registration Statement has become effective, in the event that the Company's
sales for any two consecutive fiscal quarters, commencing with the second
quarter of 1999 and ending with the third quarter of 2000, are at least 90% of
the sales indicated on the projections attached as Exhibit D for each of such
fiscal quarters, the Company shall have the right upon notice to the Purchaser
Representative (as defined in Section 11.3) within 60 days after the end of the
first two-fiscal quarter period that such sales are achieved to require
Purchasers to purchase, on a pro rata basis, an aggregate number of shares of
Preferred Stock (the "Additional Preferred Shares") equal to the number of
Preferred Shares purchased at the First Closing (as defined in Section 2.1) for
an aggregate purchase price of $3,000,000, and the Company shall issue to
Purchasers, on a pro rata basis, an aggregate number of Warrants (the
"Additional
1
<PAGE> 2
Warrants") equal to the number of Warrants issued at the First Closing;
provided however, (i) the Company shall not be entitled to give the notice
permitted by this Section 1.1(b) if the Market Price of the Common Stock (after
adjustment for any stock splits, combinations and the like) is less than 120%
of the Initial Conversion Price in effect on the date hereof and (ii) the
Purchasers shall not be required to purchase any Additional Preferred Shares
if, as of the date scheduled for the Second Closing, the Market Price for the
Common Stock is less than 120% of the Initial Conversion Price in effect on the
date hereof. A notice contemplated by this Section 1.1 shall be accompanied by
(i) an Officer's Certificate to the effect that there has not at any time been
(a) any material adverse change in the business, financial condition, operating
results, business prospects, employee relations or customer relations of the
Company or its Subsidiaries, or (b) other adverse changes, which in the
aggregate have been materially adverse to the Company or its Subsidiaries, and
(ii) an unqualified certification, in form and substance satisfactory to
Purchasers, of the Chief Financial Officer of the Company as to the sales of
the Company for the applicable fiscal quarters of the Company to the effect
that the sales figures have been prepared in accordance with the books and
records of the Company and generally accepted accounting principles applied on
a basis consistent with prior periods and the projections. The Additional
Warrants shall be exercisable until the seventh anniversary of the date of
their issuance. Capitalized terms used but not defined in this Section 1.1(b)
shall have the meanings ascribed thereto in the Certificate of Designations.
(c) In the event any additional shares of Common Stock are issued pursuant to
the Warrants issued pursuant to Section 8.6, the purchase price(s) paid for the
Preferred Shares shall be reallocated on a pro rata, as converted basis over
the Preferred Shares and such shares of Common Stock.
2. Closing.
2.1. Closing. (a) The closing of the purchase and sale of the
Initial Preferred Shares and the issuance of the Initial Warrants shall take
place at the offices of Paramount Capital, Inc. ("Paramount"), at 787 Seventh
Avenue, 48th Floor, New York, New York, 10019. Such closing (the "First
Closing") will take place at 10:00 A.M., local time, on February 16, 1999;
provided that the Closing may take place at such other time, place or later
date as may be mutually agreed upon by the Company and Purchasers. The date of
the Closing is referred to as the "First Closing Date." At the First Closing,
the Company will deliver to Purchasers the Initial Preferred Shares and the
Initial Warrants against payment of the Initial Purchase Price by Purchasers by
wire transfer payable to the Company. The Initial Preferred Shares and the
Initial Warrants shall be registered in Purchasers' names or the names of the
nominees of Purchasers in such denominations as Purchasers shall request
pursuant to instructions delivered to the Company not less than two days prior
to the First Closing Date.
(b) The purchase and sale of the Additional Preferred Shares and the issuance
of the Additional Warrants shall take place at a closing (the "Second Closing";
each of the First Closing and the Second Closing being referred to herein as a
"Closing") held on a date as promptly as practicable following the date notice
is given to the Purchaser Representative by the Company pursuant to Section
1.1(b) (the "Second Closing Date"; each of the First Closing Date and the
Second Closing Date being referred to herein as a "Closing Date") and in any
event within 30 days of the date of such notice.
2.2. Limitation on Holder's Right to Convert/Vote.
Notwithstanding anything to the contrary in any Operative Document, no
Preferred Share may be converted or voted, no Warrant may be exercised and no
shares of Common Stock issued as a dividend on Preferred Shares or upon
exercise of Warrants may be voted by a Purchaser if such right to convert,
exercise or right to vote would cause the total number of Common Shares deemed
beneficially owned (as defined in Rule 13(d)(3) of the Securities Act of 1933,
as amended) by such Purchaser, together with all Common Shares deemed
beneficially owned by the holder's Affiliates (such term and certain other
capitalized terms used herein being defined in Section 9) and by any other
Person whose ownership of such securities would be aggregated for purposes of
determining whether a "group" exists under Section 13(d) of the Securities
Exchange Act of 1934, as amended, would exceed 4.9% of the total issued and
outstanding shares of Common Stock, provided that each Purchaser shall have the
right to waive this restriction, in whole or in part, upon 61 days prior notice
to the Company. A transferee of such securities shall not be bound by this
provision unless it expressly agrees to be so bound.
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3. Conditions to the Obligations of Purchasers at the
Closings. (a) Conditions to Each Closing. The obligation of Purchasers to
purchase and pay for the Preferred Shares and the Warrants to be purchased by
Purchasers at each Closing is subject to the satisfaction on or prior to the
applicable Closing Date of the following conditions, which may only be waived
by written consent of Purchasers:
3.1. Opinion of Counsel to the Company. Purchasers shall have
received from Benesch, Friedlander, Coplan & Aronoff LLP, counsel for the
Company, its opinion dated such Closing Date in the form of Exhibit E.
3.2. Representations and Warranties. All of the
representations and warranties of the Company contained in this Agreement and
the other Operative Documents shall be true and correct at and as of such
Closing Date.
3.3. Performance of Covenants. All of the covenants and
agreements of the Company contained in this Agreement and the other Operative
Documents required to be performed on or prior to such Closing Date shall have
been performed in a manner satisfactory in all respects to Purchasers.
3.4. Legal Action. No injunction, order, investigation, claim,
action or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of the Operative Documents or any of the
transactions contemplated thereby, declare unlawful the transactions
contemplated by the Operative Documents or cause any such transaction to be
rescinded.
3.5. Consents. The Company shall have obtained in writing or
made all consents, waivers, approvals, orders, permits, licenses and
authorizations of, and registrations, declarations, notices to and filings and
applications with, any governmental authority or any other Person (including,
without limitation, security holders and creditors of the Company) required to
be obtained or made in order to enable the Company to observe and comply with
all its obligations under the Operative Documents and to consummate and perform
the transactions contemplated thereby. The Board of Directors of the Company
shall have taken all action required by the terms of the Rights Agreement dated
as of July 18, 1995, between the Company and Continental Stock Transfer & Trust
Company, to permit the transactions contemplated by the Operative Documents and
the Paramount Agreements (as such term is defined in Section 5.21) without
triggering any rights of the Company's security holders pursuant to such Rights
Agreement or any securities issued or issuable thereunder.
3.6. Closing Documents. The Company shall have delivered to
Purchasers the following:
(a) a certificate executed by the President and Chief Executive
Officer of the Company dated such Closing Date stating that the conditions set
forth in Sections 3.2 through 3.5 have been satisfied;
(b) an incumbency certificate dated the Closing Date for the
officers of the Company executing the Operative Documents and any other
documents or instruments delivered in connection therewith at, or in connection
with, such Closing;
(c) a certificate of the Secretary of the Company, dated such
Closing Date, as to the continued and valid existence of the Company,
certifying the attached copy of the By-laws of the Company, the authorization
of the execution, delivery and performance of the Operative Documents, and the
resolutions adopted by the Board of Directors of the Company authorizing the
actions to be taken by the Company under the Operative Documents;
(d) a certificate of the Secretary of State of the State of
Delaware, dated a recent date, to the effect that the Company is in good
standing in the State of Delaware and that all annual reports, if any, have
been filed as required and that all taxes and fees have been paid in connection
therewith;
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(e) a certified copy of the Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of Delaware,
including any amendments thereto; and
(f) such certificates, other documents and instruments as
Purchasers and their counsel may reasonably request in connection with, and to
effect, the transactions contemplated by the Operative Documents.
3.7. Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated by this Agreement
and the other Operative Documents to be consummated at such Closing and all
documents incident thereto shall be satisfactory in form and substance to
Purchasers.
3.8. Closing Financial Statements; Absence of Changes. (a)
The Company shall have provided to Purchasers (i) the unaudited consolidated
balance sheets of the Company and its Subsidiaries as of September 30, 1998,
and the related unaudited consolidated statements of operations, stockholders'
equity, and cash flows for the three-month (and nine-month) periods then ended
(the "Financial Statements"), all of which will be correct and complete and
will present fairly the financial position of the Company and the results of
its operations and changes in its financial position as of the time and for the
periods then ended, (ii) the unqualified certification, in form and substance
satisfactory to Purchasers, of the Chief Financial Officer of the Company as to
the Financial Statements to the effect that the Financial Statements have been
prepared in accordance with the books and records of the Company and its
Subsidiaries and generally accepted accounting principles applied on a basis
consistent with prior years (except as otherwise specified in such
certification), and present fairly the financial position of the Company and
its Subsidiaries and the and the results of their operations and changes in
their financial position as of the time and for the periods then ended, and
(iii) a "bring-down" certificate, in form and substance satisfactory to
Purchaser, of the Chief Executive Officer of the Company and the Chief
Financial Officer of the Company with respect to the financial position of the
Company as of such Closing Date and as to results for the period from the date
of the Financial Statements to such Closing Date.
(b) Except as set forth on the schedules to this Agreement,
there shall have been no material adverse change in the business, financial
condition, operating results, employee or customer relations or prospects of,
or otherwise with respect to, the Company and its Subsidiaries, from September
30, 1998 to such Closing Date.
3.9. Schedules. The Company shall have provided to
Purchasers all schedules required pursuant to this Agreement, which schedules
shall be satisfactory to Purchasers in their sole discretion.
4. Conditions to the Obligations of the Company at the
Closings. The obligation of the Company to issue and sell the Preferred Shares
and the Warrants to Purchasers at each Closing is subject to the satisfaction
on or prior to the applicable Closing Date of the following conditions, any of
which may be waived by the Company:
4.1. Representations and Warranties. The representations and
warranties of Purchasers contained in this Agreement shall be true and correct
at and as of such Closing Date.
4.2. Legal Action. No injunction, order, investigation, claim,
action or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of the Operative Documents or any of the
transactions contemplated thereby, declare unlawful the transactions
contemplated by the Operative Documents or cause any such transaction to be
rescinded.
5. Representations and Warranties of the Company. The
Company represents and warrants to Purchasers as of each Closing Date as
follows (it being understood that the Company's representations set forth in
Sections 5.14 and 5.15 shall, for purposes of the Second Closing Date, be
deemed to relate to any updated versions of such Schedules provided by the
Company to Purchasers on or prior to such Closing Date):
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5.1. Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the Company's Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. The Company and its Subsidiaries have all requisite corporate
power and authority, and hold all licenses, permits and other required
authorizations from governmental authorities, necessary to conduct their
respective businesses as now being conducted or proposed to be conducted and to
own or lease the properties and assets they now own or hold under license or
lease (except that the Company may in the future be required to obtain certain
approvals of the U.S. Food and Drug Administration in connection with its
business as proposed to be conducted). The Company and the Subsidiaries are
duly qualified or licensed and in good standing as a foreign corporation in
each jurisdiction wherein the character of their properties or the nature of
the activities conducted by them makes such qualification or licensing
necessary.
5.2. Charter Documents. The Company has heretofore delivered
to Purchasers true, correct and complete copies of the Certificate of
Incorporation and By-Laws (or comparable organizational documents) of the
Company and its Subsidiaries as in full force and effect on the date hereof.
5.3. Capitalization. Except as set forth on Schedule 5.3 with
respect to the Second Closing Date, as of such Closing Date, the Company's
authorized capitalization consists of 50,000,000 shares of Common Stock, of
which 22,967,910 shares are issued and outstanding as of such Closing Date, and
5,000,000 shares of preferred stock, par value $.001 per share, of which
500,000 shares are designated as Series A Junior Participating Preferred Stock
(none of which are issued and outstanding). 2,950,313 shares of Common Stock
are reserved for issuance upon the conversion or exercise of convertible
securities, options, warrants or other rights to purchase Common Stock
outstanding as of such Closing Date. All outstanding securities of the Company
are validly issued, fully paid and nonassessable. No stockholder of the Company
is entitled to any preemptive rights with respect to the purchase or sale of
any securities by the Company. There are no outstanding options, warrants or
other rights, commitments or arrangements, written or oral, to purchase or
otherwise acquire any authorized but unissued shares of capital stock of the
Company or any security directly or indirectly convertible into or exchangeable
for any capital stock of the Company or under which any such option, warrant or
convertible security may be issued in the future except (i) as set forth on
Schedule 5.3, (ii) for the Preferred Shares and Warrants issued or issuable to
Purchasers or pursuant to the Placement Warrants or (iii) as are issued to
persons other than Purchasers and Paramount in conformity with the terms and
provisions of the Operative Documents. There are no voting trusts or
agreements, stockholders' agreements, pledge agreements, buy-sell, rights of
first offer, negotiation or refusal or proxies or similar arrangements relating
to any securities of the Company to which the Company is a party, and to the
best knowledge of the Company there are no other such trusts, agreement,
rights, proxies or similar arrangements. Except as set forth on Schedule 5.3
and as contemplated by this Agreement, none of the shares of capital stock of
the Company is reserved for any purpose, and the Company is neither subject to
any obligation (contingent or otherwise), nor has any option to repurchase or
otherwise acquire or retire any shares of its capital stock. Schedule 5.3 sets
forth (i) the number of shares of Common Stock authorized for issuance under
the Company's 1994 Amended and Restated Stock Option and Restricted Stock
Purchase Plan and the Company's 1996 Stock Incentive Plan, in each case as
amended and restated (collectively, the "Option Plans"); (ii) the number of
shares of Common Stock as to which options issued under the Option Plans have
been (a) reserved for issuance and (b) exercised, in each case as of such
Closing Date; and (iii) the exercise prices for all outstanding options under
the Option Plans as of such Closing Date. Schedule 5.3 also sets forth a list
of all securities of the Company which are issued and outstanding or reserved
for issuance upon exercise or conversion of outstanding securities of the
Company as to which the Company is obligated to file a registration statement
under the Securities Act other than on Form S-8.
5.4 Due Authorization, Valid Issuance, Etc. The Preferred
Shares to be purchased on such Closing Date have been duly authorized and, when
issued in accordance with this Agreement upon such Closing Date, will be
validly issued, fully paid and nonassessable and will be free and clear of all
liens imposed by or through the Company. The Warrants to be purchased on such
Closing Date have been duly authorized and, when issued in accordance with this
Agreement upon such Closing Date, will be validly issued and free and clear of
all liens imposed by or through the Company. The Common Shares issuable upon
conversion of the Preferred Shares to be issued on such Closing Date have been
and will, at all times until their issuance, be
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duly authorized and reserved, and such Common Shares, upon conversion of such
Preferred Shares in accordance with the terms and conditions of the Certificate
of Designations and this Agreement, and any shares of Common Stock issued as a
dividend upon such Preferred Shares, upon issuance, will be validly issued,
fully paid and nonassessable shares of Common Stock and will be free and clear
of all liens imposed by or through the Company. The Common Stock issuable upon
the exercise of the Warrants to be issued on such Closing Date have been and
will, at all times until their issuance, be duly authorized and reserved, and
upon the exercise of the Warrants in accordance with the terms and conditions
thereof and this Agreement, will be validly issued, fully paid and
nonassessable shares of Common Stock and will be free and clear of all liens
imposed by or through the Company. The issuance, sale and clear delivery of
such Preferred Shares and Warrants, and the Common Shares issuable upon
conversion of such Preferred Shares, the exercise of such Warrants and as
dividends on such Preferred Shares will not be subject to any preemptive right
of stockholders of the Company or to any right of first refusal or other right
in favor of any person or entity. The Company's executive officers and
directors have studied and fully understand the nature of the securities being
sold hereunder, and recognize that they have a potential dilutive effect.
Except as set forth on Schedule 5.4, no antidilution adjustments with respect
to the outstanding securities of the Company will be triggered by the issuance
of the securities contemplated by the Operative Documents.
5.5. Subsidiaries. Except as set forth on Schedule 5.5, the
Company has no wholly or partially owned Subsidiaries (as defined in Section
9.10) and does not control, directly or indirectly, any other corporation,
business trust, firm, partnership, association, joint venture, entity or
organization. Except as set forth on Schedule 5.5, the Company does not own any
shares of stock, partnership interest, joint venture interest or any other
security, equity or interest in any other corporation or other Person.
5.6. Authorization; No Breach. The Company has the full
corporate power and authority to execute, deliver and enter into each of the
Operative Documents and to perform its obligations thereunder, and the
execution, delivery and performance of each of the Operative Documents and all
other transactions contemplated by each of the Operative Documents have been
duly authorized by the Company. Each of the Operative Documents constitutes a
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms except as such enforceability may be limited by (a) bankruptcy,
insolvency, moratorium and similar laws affecting creditors' rights generally
and (b) the availability of remedies under general equitable principles. Except
as set forth on Schedule 5.6, the execution and delivery by the Company of the
Operative Documents, the offering, sale and issuance of the Preferred Shares
and the Warrants, and the performance and fulfillment of the Company of its
obligations under the Operative Documents, do not and will not (i) conflict
with or result in a breach of the terms, conditions or provisions of, (ii)
constitute a default under, or event which, with notice or lapse of time or
both, would constitute a breach of or default under, (iii) result in the
creation of any lien, security interest, adverse claim, charge or encumbrance
upon the capital stock or assets of the Company pursuant to, (iv) give any
third party the right to accelerate any obligation under or terminate, (v)
result in a violation of, (vi) result in the loss of any license, certificate,
legal privilege or legal right enjoyed or possessed by the Company under, or
(vii) require any authorization, consent, approval, exemption or other action
by or notice to any court or administrative or governmental body pursuant to or
require the consent of any other Person under, the Certificate of Incorporation
or By-Laws of the Company or any law, statute, rule or regulation to which the
Company is subject or by which any of its properties are bound, or any
agreement, instrument, order, judgment or decree to which the Company is
subject or by which its properties are bound.
5.7. Financial Statements and SEC Documents. (a) Attached as
Schedule 5.7 (or contained within the SEC documents (as defined in Section
5.7(b)) are the audited consolidated balance sheets of the Company and its
Subsidiaries as of December 31, 1995, 1996, and 1997, and the related audited
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1995, 1996, and 1997, and for the period from
November 16, 1983 (date of inception) to December 31, 1997, together with the
related notes thereto (the "Audited Financial Statements"), all of which will
be correct and complete, and which shall be accompanied by an unqualified
report, in form and substance reasonable satisfactory to the Purchaser
Representative, of independent public accountants reasonably satisfactory to
the Purchaser Representative to the effect that the Audited Financial
Statements have been prepared in accordance with the books and records of the
Company and its Subsidiaries and generally accepted accounting principles,
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have been applied consistently with the past practices of the Company and its
Subsidiaries (except as otherwise noted in such Audited Financial Statements),
reflect all liabilities and obligations of the Company and its Subsidiaries, as
of their respective dates, and present fairly the financial position of the
Company and its Subsidiaries and the results of their operations as of the time
and for the periods indicated therein.
(b) The Company has made available to Purchasers a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the SEC since January 1, 1995 (as
such documents have since the time of their filing been amended, the "SEC
Documents") which are all the documents (other than preliminary material) that
the Company was required to file with the SEC since such date. As of their
respective dates, the SEC Documents complied in all respects with the
requirements of the Securities Act (as defined in Section 9.8) and/or the
Securities Exchange Act (as defined in Section 9.9) as the case may be, and the
rules and regulations of the SEC thereunder applicable to such SEC Documents
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to statement of material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been 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 the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present the financial position of the Company as at the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended.
5.8. No Material Adverse Changes. Since September 30, 1998,
except as disclosed in (i) the SEC Documents filed subsequent to that date and
(ii) Schedule 5.8 there has not at any time been (a) any material adverse
change in the business, financial condition, operating results, business
prospects, employee relations or customer relations of the Company or its
Subsidiaries, or (b) other adverse changes, which in the aggregate have been
materially adverse to the Company or its Subsidiaries. Except as set forth on
Schedule 5.8, no event or circumstance has occurred or exists with respect to
the Company or its Subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
5.9. Absence of Certain Developments. Except as contemplated
by this Agreement, and except as set forth in Schedule 5.9, since September 30,
1998, the Company and each of its Subsidiaries have not, nor will have prior to
such Closing Date: (a) issued any securities (other than, with respect to the
Second Closing, as permitted or contemplated by the Operative Documents); (b)
borrowed any amount or incurred or became subject to any liabilities (absolute
or contingent), other than liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary course of
business, none of which are or shall be material and which involve less than
$50,000; (c) discharged or satisfied any lien, adverse claim or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business; (d) declared or made any
payment or distribution of cash or other property to the stockholders of the
Company with respect to the Common Stock or purchased or redeemed any shares of
Common Stock; (e) mortgaged, pledged or subjected to any lien, adverse claim,
charge or any other encumbrance, any of its properties or assets, except for
liens for taxes not yet due and payable; (f) sold, assigned or transferred any
of its assets, tangible or intangible, except in the ordinary course of
business and in an amount less than $50,000, or disclosed to any person, firm
or entity not party to a confidentiality agreement with the Company any
proprietary confidential information; (g) suffered any extraordinary losses or
waived any rights of material value; (h) made any capital expenditures or
commitments therefor; (i) entered into any other transaction other than in the
ordinary course of business in an amount less than $50,000 or entered into any
material transaction, whether or not in the ordinary course of business; (j)
made any charitable contributions or pledges; (k) suffered damages, destruction
or casualty loss, whether or not covered by insurance, affecting any of the
properties or assets of the Company or its Subsidiaries or any other properties
or assets of the Company or its Subsidiaries which could have a material
adverse effect on the business, financial condition, operating results,
employee or customer relations or prospects of, or otherwise with respect to
the business or operations of the Company or its Subsidiaries; (l) made any
change in the nature or
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operations of the business of the Company or its Subsidiaries; or (m) resolved
or entered into any agreement or understanding with respect to any of the
foregoing.
5.10. Properties. The Company and its Subsidiaries have good
and marketable title to all of the real property and good title to all of the
personal property and assets they purport to own, including those reflected as
owned on (a) the December 31, 1998 balance sheet included in the financial
statements included in Schedule 5.8 with respect to the Company and (b) the
September 30, 1998 balance sheet included in the Financial Statements with
respect to the Subsidiaries, or acquired after such dates, and a good and valid
leasehold interest in all property indicated as leased on (a) the December 31,
1998 balance sheet in Schedule 5.8 with respect to the Company and (b) the
September 30, 1998 balance sheet included in the Financial Statements with
respect to the Subsidiaries, whether such property is real or personal, free
and clear of all liens, adverse claims, charges, encumbrances or restrictions
of any nature whatsoever, except (a) such as are reflected on (i) the December
31, 1998 balance sheet included in the financial statements included in
Schedule 5.8 with respect to the Company and (ii) the September 30, 1998
balance sheet included in the Financial Statements with respect to the
Subsidiaries, or described in Schedule 5.10 and (b) for receivables and charges
collected in the ordinary course of business. Except as disclosed in Schedule
5.10, the Company and its Subsidiaries own or lease all such properties as are
necessary to their operations as now conducted and as presently proposed to be
conducted and all such properties are, in all material respects, in good
operating condition and repair.
5.11. Taxes. The Company and its Subsidiaries have timely filed
all federal, state, local and foreign tax returns and reports required to be
filed, and all taxes, fees, assessments and governmental charges of any nature
shown by such returns and reports to be due and payable have been timely paid
except for those amounts being contested in good faith and for which
appropriate amounts have been reserved in accordance with generally accepted
accounting principles and are reflected on (a) the December 31, 1998 balance
sheet in Schedule 5.8 with respect to the Company and (b) the September 30,
1998 balance sheet included in the Financial Statements with respect to the
Subsidiaries. There is no tax deficiency that has been, or, to the knowledge of
the Company or its Subsidiaries might be, asserted against the Company or its
Subsidiaries that would adversely affect the business or operations, or
proposed business or operations, of the Company or its Subsidiaries. All such
tax returns and reports were prepared in accordance with the relevant rules and
regulations of each taxing authority having jurisdiction over the Company and
its Subsidiaries and are true and correct. The Company and its Subsidiaries
have neither given nor been requested to give any waiver of any statute of
limitations relating to the payment of federal, state, local or foreign taxes.
The Company and the Subsidiaries have not been, nor is it now being, audited by
any federal, state, local or foreign tax authorities. The Company and
Subsidiaries have made all required deposits for taxes applicable to the
current tax year. The Company and its Subsidiaries are not, and have never
been, a member of any "affiliated group" within the meaning of Section 1504 of
the Internal Revenue Code, as in effect from time to time.
5.12. Litigation. Except as set forth on Schedule 5.12, there
are no actions, suits, proceedings, orders, investigations or claims pending
or, to the knowledge of the Company and its Subsidiaries, threatened against or
affecting the Company or its Subsidiaries, at law or in equity or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality; there are no arbitration proceedings
pending under collective bargaining agreements or otherwise; and, to the
knowledge of the Company and its Subsidiaries, there is no basis for any of the
foregoing.
5.13. Compliance with Law. The Company and its Subsidiaries
have complied in all respects with all applicable statutes and regulations of
the United States and of all states, municipalities and applicable agencies and
foreign jurisdictions or bodies in respect of the conduct of their business and
operations.
5.14. Trademarks and Patents. Schedule 5.14 contains a true,
complete and correct list of all trademarks, trade names, patents and
copyrights (and applications therefor) if any, owned or licensed or used or
required to be used by the Company and the Subsidiaries as of or prior to such
Closing Date in connection with their respective businesses and, each such
trademark, trade name, patent and copyright (and application therefor) listed
in Schedule 5.14 as being owned by the Company or a Subsidiary is not subject
to any license, royalty arrangement, option or dispute and is free and clear of
all liens. To the best knowledge of
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the Company and its Subsidiaries, none of the trademarks, trade names, patents
or copyrights used by the Company and its Subsidiaries in connection with their
businesses infringe any trademark, trade name, patent or copyright of others in
the United States or in any other country, in any way which adversely affects
or which in the future may adversely affect the business or operations of the
Company or its Subsidiaries. No stockholder, officer or director of the Company
or any Subsidiary or any other person owns or has any interest in any
trademark, trade name, service mark, patent, copyright or application therefor,
or trade secret, licenses, invention, information or proprietary right or
process, if any, used by the Company or its Subsidiaries in connection with
their businesses. The Company and its Subsidiaries have no notice or knowledge
of any objection or claim being asserted by any person with respect to the
ownership, validity enforceability or use of any such trademarks, trade names,
patents and copyrights (and applications therefor) listed on Schedule 5.14 or
challenging or questioning the validity or effectiveness of any license
relating thereto. There are no unresolved conflicts with, or pending claims of,
any other person, whether in litigation or otherwise, involving the trademarks,
trade names, patents and copyrights (and applications therefor), and there are
no liens, encumbrances, adverse claims, or rights of any other person which
would prevent the Company from fulfilling its obligations under this Agreement.
To the best knowledge of the Company and the Subsidiaries, the business of the
Company and its Subsidiaries, as presently conducted and as proposed to be
conducted does not and will not cause the Company or any Subsidiary to violate
any trademark, trade name, patent, copyright, trade secret, license or
proprietary interest of any other person or entity, in any way which adversely
affects or which in the future may adversely affect the business or operations
of the Company and its Subsidiaries. Except as disclosed in Schedule 5.14, the
Company and the Subsidiaries possess all proprietary technology necessary for
the conduct of business by the Company and the Subsidiaries, both as presently
conducted and as presently proposed to be conducted.
5.15. Insurance. Schedule 5.15 contains a brief description of
each insurance policy maintained by the Company and its Subsidiaries with
respect to their properties, assets and business; each such policy is in full
force and effect; and the Company and the Subsidiaries are not in default with
respect to their obligations under any of such insurance policies. Such
insurance coverage is in amounts not less than is customarily maintained by
corporations engaged in the same or similar business and similarly situated,
including, without limitation, insurance against loss, damage, fire, theft,
public liability and other risks. The activities and operations of the Company
and its Subsidiaries have been conducted in a manner so as to conform to all
applicable provisions of these insurance policies and the Company and the
Subsidiaries have not taken or failed to take any action which would cause any
such insurance policy to lapse.
5.16. Agreements. Except as set forth in Schedule 5.16, the
Company and the Subsidiaries are not party to nor bound by any agreement or
commitment, written or oral, which obligates the Company or any Subsidiary to
make payments to any person, or which obligates any person to make payments to
the Company or any Subsidiary, in the case of each such agreement in an amount
exceeding $50,000, or which is otherwise material to the conduct and operation
of the business or proposed business of the Company and its Subsidiaries or any
of their properties or assets, including, without limitation, all shareholder,
employment, non-competition and consulting agreements and employee benefit
plans and arrangements and collective bargaining agreements to which the
Company or any Subsidiary is a party or by which it is bound. All such
agreements are legal, valid and binding obligations of the Company and its
Subsidiaries, in full force and effect, and enforceable in accordance with
their respective terms, except as the enforceability thereof may be limited by
(a) bankruptcy, insolvency, moratorium, and similar laws affecting creditors'
rights generally and (b) the availability of remedies under general equitable
principles. The Company and the Subsidiaries have performed all obligations
required to be performed by it, and are not in default, or in receipt of any
claim, under any such agreement or commitment, and the Company and its
Subsidiaries have no present expectation or intention of not fully performing
all of such obligations, nor does the Company or any Subsidiary have any
knowledge of any breach or anticipated breach by the other parties to any such
agreement or commitment. The Company and its Subsidiaries are not party to any
contract, agreement, instrument or understanding which materially adversely
affects the business, properties, prospects, operations, assets or condition
(financial or otherwise) of the Company or its Subsidiaries. Purchasers have
been furnished with, or the Company has made available for the Purchaser's
review, a true and correct copy of each written agreement referred to in
Schedule 5.16, together with all amendments, waivers or other changes thereto.
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5.17. Undisclosed Liabilities. Except as set forth on Schedule
5.17, the Company and the Subsidiaries have no obligation or liability (whether
accrued, absolute, contingent, unliquidated, or otherwise, whether or not known
to the Company or its Subsidiaries, whether due or to become due) arising out
of transactions entered into at or included in Schedule 5.8 or on the September
30, 1998 balance sheet included in the Financial Statements prior to such
Closing Date, or any action or inaction at or prior to such Closing Date, or
any state of facts existing at or prior to such Closing Date, except (a)
liabilities reflected on the December 31, 1998 balance sheet included in the
financial statements included in Schedule 5.8 or the September 30, 1998 balance
sheet included in the Financial Statements, (b) liabilities in an amount less
than $50,000 incurred in the ordinary course of business since September 30,
1998 (none of which is a liability for breach of contract, breach of warranty,
torts, infringements, claims or lawsuits); (c) liabilities or obligations
disclosed in the schedules to this Agreement or (d) with respect to the Second
Closing Date, liabilities the incurrence of which did not constitute a
violation of this Agreement.
5.18. Employees; Conflicting Agreements. (a) The Company has
caused all present members of management and all professional employees of and
consultants and advisors to the Company and its Subsidiaries, including all
employees and consultants and advisors involved in research and development,
and will cause all such persons in the future, to be subject to agreements with
respect to (i) nondisclosure of confidential information, (ii) assignment of
patents, trademarks, copyrights and proprietary rights to the Company or its
Subsidiaries and (iii) disclosure to the Company and its Subsidiaries of
inventions in form and substance satisfactory to the Purchaser Representative
(as defined in Section 11.3).
(b) To the best knowledge of the Company and its Subsidiaries,
no stockholder, director, officer or key employee of the Company or any
Subsidiary is a party to or bound by any agreement, contract or commitment, or
subject to any restrictions in connection with any previous or current
employment of any such person (other than as set forth on Schedule 5.18(b) with
respect to the Company), which adversely affects, or which in the future may
adversely affect, the business or the proposed business of the Company or any
Subsidiary or the rights of any of the Purchasers under the Operative
Documents, including, without limitation, in respect of Purchasers rights as a
holder of the Preferred Shares, the Warrants and the shares of Common Stock
issuable in connection therewith.
5.19. Disclosure. Neither this Agreement nor any of the
schedules, exhibits, written statements, documents or certificates prepared or
supplied by the Company with respect to the transactions contemplated by the
Operative Documents contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances under which made. There exists no fact or
circumstance which, to the knowledge of the Company or its Subsidiaries upon
due inquiry, materially adversely affects, or which could reasonably be
anticipated to have a material adverse effect on, the existing or expected
financial condition, operating results, assets, customer relations, employee
relations or business prospects of the Company or its Subsidiaries.
5.20. Compliance with Securities Laws. (a) Other than
Paramount, neither the Company nor any of its Affiliates nor anyone acting on
their behalf has directly or indirectly offered the Preferred Shares and the
Warrants or any part thereof or any similar security of the Company (or any
other securities convertible or exchangeable for the Preferred Shares and the
Warrants or any similar security), for sale to, or solicited any offer to buy
the same from, anyone other than Purchasers. Assuming the accuracy and truth of
each of Purchasers' representations set forth in Section 6, all securities of
the Company and its Subsidiaries heretofore sold and issued were sold and
issued, and the Preferred Shares and the Warrants (and any other securities
convertible or exchangeable for the Preferred Shares and the Warrants) were
offered and will be sold and issued, in compliance with all applicable federal,
state and foreign securities laws. Neither the Company, nor any of its
Affiliates, nor, to its knowledge, any person or entity acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
require registration of the Preferred Shares, the Warrants or the shares of
Common Stock underlying the Preferred Shares or the Warrants under the
Securities Act or for the offering of the same to be integrated with any other
offering of securities.
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(b) The Company has not directly or indirectly purchased or
redeemed any shares of Common Stock during the 30 Trading Days (as such term is
defined in the Certificate of Designations) preceding the First Closing Date.
5.21. Brokers. Except for Paramount, no finder, broker, agent,
financial person or other intermediary has acted on behalf of the Company in
connection with the offering of the Preferred Shares or the Warrants, the
execution of the Operative Documents or the consummation of any of the
transactions contemplated by the Operative Documents. The Company has agreed to
grant certain registration rights to the holders of the Unit Purchase Option
for the Purchase of Preferred Stock and Warrants (the "Unit Purchase Option")
issuable to Paramount pursuant to the Financial Advisory Agreement between
Paramount and the Company dated the date hereof (the "Financial Advisory
Agreement"). The Company shall be solely responsible for payment of the fees
and expenses of Paramount pursuant to the Financial Advisory Agreement and the
Letter Agreement between the Company and Paramount dated as of January 21, 1999
(the "Letter Agreement"). The Unit Purchase Option, the Financial Advisory
Agreement and the Letter Agreement are referred to herein collectively as the
"Paramount Agreements."
5.22. Transactions with Affiliates. Except as set forth on
Schedule 5.22, no director, officer, employee, consultant or agent of the
Company or its Subsidiaries, or member of the family of any such person or any
corporation, partnership, trust or other entity in which any such person, or
any member of the family of any such person, has a substantial interest in or
is an officer, director, trustee, partner or holder of more than 5% of the
outstanding capital stock thereof, is a party to any transaction with the
Company or any Subsidiary, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by or
requiring payments to any such person or firm.
5.23. Environmental Matters (a) The Company and its
Subsidiaries, and all properties owned, operated or leased by the Company and
its Subsidiaries have obtained and currently maintain all environmental permits
required for their business and operations and are in compliance with all such
environmental permits; (ii) there are no legal proceedings pending nor, to the
best knowledge of the Company and its Subsidiaries, threatened to modify or
revoke any such environmental permits; and (iii) neither Company (and its
Subsidiaries) nor any property owned, operated or leased by the Company (and
its Subsidiaries) has received any notice from any source that there is lacking
any environmental permit required for the current use or operation of the
business of the Company or its Subsidiaries, or any property owned, operated or
leased by the Company or its Subsidiaries.
(b) All real property owned, operated or leased by the Company
and its Subsidiaries, and, to the best knowledge of the Company and its
Subsidiaries, all property adjacent to such properties, are free from
contamination by any hazardous material; and the Company and its Subsidiaries
are not subject to environmental costs and liabilities with respect to
hazardous materials, and no facts or circumstances exist which could give rise
to environmental costs and liabilities with respect to hazardous materials.
(c) There is not now, nor has there been in the past, on, in,
or under any real property owned, leased, or operated by the Company and its
Subsidiaries, or by any of their respective predecessors (i) any asbestos-
containing materials, (ii) any underground storage tanks, (iii) above-ground
storage tanks, (iv) impoundments, (v) poly-chlorinated biphenyls or (vi)
radioactive substances.
(d) The Company has provided or made available to Purchasers
drafts and final versions of all environmental site assessments (including, but
not limited to Phase I and Phase II reports), risk management studies and
internal environmental audits that have been conducted by or on behalf of the
Company and its Subsidiaries ("Environmental Studies"), with respect to any
real property that now or in the past has been owned, operated or leased by the
Company and its Subsidiaries, or any of their respective predecessors.
(e) The Company and its Subsidiaries, and all properties
owned, operated or leased by the Company and its Subsidiaries, comply with all
environmental laws.
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(f) Neither the Company (and its Subsidiaries) nor any
property owned, leased or operated by the Company (and its Subsidiaries) has
received or been issued any written request for information, or has been
notified that it is a potentially responsible party under the environmental
laws with respect to any on-site or off-site for which environmental costs and
liabilities are asserted.
6. Representations, Warranties and Covenants of Purchasers.
Purchasers severally represent, warrant and covenant to the Company as of each
Closing Date (and with respect to Section 6.1, as of each date of exercise of
any Warrants) as follows:
6.1. Investment Intent. Each Purchaser is an "accredited investor"
within the meaning of Regulation D under the Securities Act. Each Purchaser has
experience in making investments in development stage biotechnology companies
and is acquiring the Preferred Shares and the Warrants for its own account and
not with a present view to, or for sale in connection with, any distribution
thereof in violation of the registration requirements of the Securities Act.
Each Purchaser consents to the placing of a legend on the certificates
representing its respective Preferred Shares and Warrants to the effect that
the shares of Common Stock issuable upon exercise or conversion, as the case
may be, of the Preferred Shares and Warrants have not been registered under the
Securities Act and may not be transferred except in accordance with applicable
securities laws or an exception therefrom. The Purchasers acknowledge and agree
that Paramount has not supplied any information to the Purchasers other than
information furnished in writing to the Company by Paramount, that Paramount
has no responsibility for the accuracy or completeness of any such information
and that the Purchasers have not relied upon the independent investigation or
verification, if any, which may have been undertaken by Paramount. The
Purchasers were contacted regarding the transactions contemplated by the
Operative Documents by Paramount, with whom the Purchasers have a prior
substantial pre-existing relationship.
6.2. Authorization. Each Purchaser has the power and authority
to execute and deliver this Agreement and to perform its obligations hereunder,
having obtained all required consents, if any, and this Agreement, when
executed and delivered, will constitute a legal valid and binding obligation of
such Purchaser.
6.3. Brokers. Other than Paramount, no finder, broker, agent,
financial person or other intermediary has acted on behalf of Purchasers in
connection with the offering of the Preferred Shares and the Warrants or the
consummation of this Agreement or any of the transactions contemplated hereby.
6.4. Trading Restrictions. Purchasers have not directly or
indirectly sold any shares of Common Stock during the 30 Trading Days (as such
term is defined in the Certificate of Designations) preceding the First Closing
Date. As of the First Closing Date, the Purchasers do not directly or
indirectly have a "short" position with respect to the Common Stock. During the
30 Trading Days (as such term is defined in the Certificate of Designations)
prior to the Reset Date (as such term is defined in the Certificate of
Designations), the Purchasers shall not directly or indirectly sell any shares
of Common Stock. During the 10 consecutive Trading Days ending on the Trading
Day preceding the effective date of conversion of any Purchaser' shares of
Preferred Stock, such Purchaser shall not directly or indirectly sell any
shares of Common Stock on more than seven of such Trading Days.
7. Covenants of the Company. Until such time as Purchasers
and their Affiliates beneficially own less than two percent (2%) of the Common
Stock after giving effect to the conversion or exercise of all securities of
the Company beneficially owned by Purchasers and their Affiliates, the Company
covenants and agrees with Purchasers as follows:
7.1. Books and Accounts. The Company will, and will cause each
of its Subsidiaries to: (a) make and keep books, records and accounts, which,
in reasonable detail, accurately and fairly reflect its transactions, including
without limitation, dispositions of its assets; and (b) devise and maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and
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in accordance with the Company's and such Subsidiaries' past practices or any
other criteria applicable to such statements, and to maintain accountability
for assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
7.2. Periodic Reports. (a) The Company will furnish to the
Purchaser Representative as soon as practicable, and in any event within 90
days after the end of each fiscal year of the Company (commencing with the
fiscal year ended December 31, 1998), an annual report of the Company and its
Subsidiaries, including an audited consolidated balance sheet as at the end of
such fiscal year and an audited consolidated statement of operations,
stockholders' equity (deficit) and cash flows for such fiscal year, together
with the related notes thereto, setting forth in each case in comparative form
corresponding figures for the preceding fiscal year, all of which will be
correct and complete and will present fairly the financial position of the
Company and its Subsidiaries and the results of their operations and changes in
their financial position as of the time and for the period then ended. Such
financial statements shall be accompanied by an unqualified report, in form and
substance reasonably satisfactory to the Purchaser Representative, of
independent public accountants reasonably satisfactory to the Purchaser
Representative to the effect that such financial statements have been prepared
in accordance with the books and records of the Company and its Subsidiaries
and generally accepted accounting principles applied on a basis consistent with
prior years (except as otherwise specified in such report), and present fairly
the financial position of the Company and its Subsidiaries and the results of
their operations and changes in their financial position as of the time and for
the period then ended. The Company will use its best efforts, and shall cause
its Subsidiaries, to conduct its business so that such report of the
independent public accountants will not contain any qualifications as to the
scope of the audit, the continuance of the Company and the Subsidiaries, or
with respect to the Company's and the Subsidiaries' compliance with generally
accepted accounting principles consistently applied, except for changes in
methods of accounting in which such accountants concur. The delivery
requirements of the first two sentences of this paragraph shall be deemed
satisfied if the Company provides to the Purchaser Representative within 90
days after the end of each fiscal year (or such earlier date as may be required
by the SEC) a copy of the Company's Annual Report on Form 10-K as filed with
the SEC for such fiscal year which includes the information and other
substantive delivery requirements set forth in this Section 7.2(a).
(b) The Company will furnish to the Purchaser Representative, as
soon as practicable and in any event within 45 days after the end of each of
the first three fiscal quarters of the Company during each fiscal year, a
quarterly report of the Company and its Subsidiaries consisting of an unaudited
consolidated balance sheet as at the end of such quarter and an unaudited
consolidated statement of operations, stockholders' equity (deficit) and cash
flows for such quarter and the portion of the fiscal year then ended, setting
forth in each case in comparative form corresponding figures for the preceding
fiscal year. All such reports shall be certified by the Chief Financial Officer
of the Company to be correct and complete, to present fairly the financial
position of the Company and its Subsidiaries and the consolidated results of
their operations and changes in their financial position as of the time and for
the period then ended and to have been prepared in accordance with generally
accepted accounting principles. The delivery requirements of the first sentence
of this paragraph shall be deemed satisfied with respect to any fiscal quarter
if the Company delivers to the Purchaser Representative with 45 days after the
end of such fiscal quarter (or such earlier date as may be required by the SEC)
a copy of its Quarterly Report on Form 10-Q as filed with the SEC for such
quarter.
(c) The Company shall furnish to the Purchaser Representative,
within 30 days after the end of each calendar month, an unaudited consolidated
balance sheet of the Company and its Subsidiaries as of the end of such month
and the related unaudited consolidated statement of operations, stockholders'
equity (deficit) and cash flows for such month and for the fiscal year to date,
setting forth in each case in comparative form the corresponding figures for
the budget for the current fiscal year (which, for any period on or after
delivery of the first Operating Budget (as defined in Section 7.2(d)), shall be
the relevant Operating Budget), or such other financial information as
otherwise agreed to by the parties hereto. All such statements shall be
certified by the Chief Financial Officer of the Company to the effect that such
statements fairly present the financial condition of the Company and its
Subsidiaries as of the dates shown and the results of their operations for the
periods then ended and that such statements have been prepared in conformity
with generally accepted
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accounting principles consistently applied except for normal, recurring, year-
end audit adjustments and the absence of footnotes.
(d) Commencing with the Company's fiscal year commencing January
1, 1999, the Company shall furnish to the Purchaser Representative, as soon as
practicable and in any event not less than 60 days prior to the end of each
fiscal year of the Company, (i) an annual operating budget for the Company and
its Subsidiaries, for the succeeding fiscal year, containing projections of
profit and loss, cash flow and ending balance sheets for each month of such
fiscal year (each an "Operating Budget") and (ii) a Business Plan (as defined
in Section 7.19) for the Company and its Subsidiaries. The Company shall
furnish to the Purchaser Representative within five days after the date the
Board of Directors has approved each Operating Budget and Business Plan, which
shall be no later than 60 days after the beginning of each fiscal year, such
Operating Budget and Business Plan as approved by the Board of Directors.
Promptly upon preparation thereof, the Company shall furnish to the Purchaser
Representative any other operating budgets or business plans that the Company
may prepare and any revisions or modifications of such previously furnished
Operating Budgets or Business Plans.
(e) The annual statements and quarterly statements furnished
pursuant to Sections 7.02(a) and (b) shall include a narrative discussion
prepared by the Company describing the business operations of the Company and
its Subsidiaries during the period covered by such statements. The monthly
statements furnished pursuant to Section 7.02(c) shall be accompanied by a
statement describing any material events, transactions or deviations from the
relevant Business Plan and containing an explanation of the causes and
circumstances thereof.
7.3. Certificates of Compliance. The Company covenants that
promptly after the occurrence of any default hereunder or any default under or
breach of any material agreement, or any other material adverse event or
circumstance affecting the financial condition, operating results, employee or
customer relations or prospects of, or otherwise with respect to, the Company
or any Subsidiary, it will deliver to the Purchaser Representative an Officers'
Certificate specifying in reasonable detail the nature and period of existence
thereof, and what actions the Company has taken and proposes to take with
respect thereto.
7.4. Other Reports and Inspection. The Company will furnish to
Purchasers (a) as soon as practicable after issuance, copies of any financial
statements or reports prepared by the Company for, or otherwise furnished to,
its stockholders or the SEC and (b) promptly, such other documents, reports and
financial data as Purchasers may reasonably request. In addition the Company
will, upon reasonable prior notice, make available to Purchasers or its
representatives or designees (x) all assets, properties and business records of
the Company and its Subsidiaries for inspection and/or copying and (y) the
directors, officers and employees of the Company and its Subsidiaries for
interviews concerning the business, affairs and finances of the Company and its
Subsidiaries.
7.5. Insurance. The Company will, and will cause its
Subsidiaries to, at all times maintain valid policies of worker's compensation
insurance and such other insurance with respect to its properties and business
of the kinds and in amounts not less than is customarily maintained by
corporations engaged in the same or similar business and similarly situated,
including, without limitation, insurance against fire, loss, damage, theft,
public liability and other risks. The activities and operations of the Company
and its Subsidiaries shall be conducted in a manner to conform in all material
respects to all applicable provisions of such policies.
7.6. Use of Proceeds; Restriction on Payments. (a) The
Company shall use the net proceeds from the sale of the Preferred Shares and
Warrants for general corporate purposes. The Company covenants and agrees that
it will not directly or indirectly use any of the proceeds to (i) repay any
indebtedness of the Company, including but not limited to any indebtedness to
officers, employees, directors or principal stockholders of the Company, but
excluding accounts payable incurred in the ordinary course of business or (ii)
redeem, repurchase or otherwise acquire any equity or equity-linked security of
the Company. The Company shall not make any payment or series of related
payments in excess of $25,000 without the prior written consent of the
Purchaser Representative, provided that subsequent to the effectiveness of the
Shelf
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Registration Statement (as defined in Section 8.1), so long as the Company has
not less than $1,000,000 of cash and cash-equivalents, the written consent of
the Purchaser Representative shall not be required unless such payment or
series of related payments is in excess of $100,000.
(b) Notwithstanding anything to the contrary in this Agreement
or any other Operative Document, the Company shall set aside and hold in a
segregated, escrow account satisfactory to the Purchasers, $1,500,000 in cash
from the proceeds of the sale of the Preferred Shares until the later of (x)
the receipt of the Required Shareholder Approvals (as defined in Section 7.29)
and (y) the declaration of effectiveness of the Shelf Registration Statement.
7.7. Material Changes. The Company will promptly notify the
Purchaser Representative of any material adverse change in the business,
properties, prospects, assets or condition, financial or otherwise, of the
Company or its Subsidiaries, or any other material adverse event or
circumstance affecting the Company or its Subsidiaries, and of any litigation
or governmental proceeding pending or, to the knowledge of the Company,
threatened in writing against the Company or its Subsidiaries or against any
director or officer of the Company or its Subsidiaries (excluding any material
appearing on an internet "chat" or "bulletin" board).
7.8. Transactions with Affiliates. Except for the transactions
contemplated by this Agreement, the Company shall not, and shall cause its
Subsidiaries not to, (a) engage in any transaction with, (b) make any loans to,
nor (c) enter into any contract, agreement or other arrangement (i) providing
for (x) the employment of, (y) the furnishing of services by, or (z) the rental
of real or personal property from, or (ii) otherwise requiring payments to, any
officer, director or key employee of the Company or its Subsidiaries or any
relative of such persons or any other "affiliate" or "associate" of such
persons (as such terms are defined in the rules and regulations promulgated
under the Securities Act), without the prior written approval of the
Purchasers.
7.9. Trading Restrictions. During the 30 Trading Days prior
to the Reset Date (as such term is defined in the Certificate of Designations),
the Company shall not directly or indirectly purchase or redeem any shares of
Common Stock or resolve or contract to do any of the foregoing.
7.10. Corporate Existence, Licenses and Permits; Maintenance of
Properties; New Businesses. The Company will, and will cause its Subsidiaries
to, at all times conduct its business in the ordinary course and cause to be
done all things necessary to maintain, preserve and renew its existence and
will preserve and keep in force and effect, all licenses, permits and
authorizations necessary to the conduct of its business. The Company will, and
will cause its Subsidiaries to, also maintain and keep its properties in good
repair, working order and condition, and from time to time, to make all needful
and proper repairs, renewals and replacements, so that the business carried on
in connection therewith may be properly conducted at all times.
7.11. Other Material Obligations. The Company will, and will
cause its Subsidiaries to, comply with, (a) all material obligations which it
is subject to, or becomes subject to, pursuant to any contract or agreement,
whether oral or written, as such obligations are required to be observed or
performed, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings and the Company and the Subsidiaries have
set aside on their books adequate reserves with respect thereto, and (b) all
applicable laws, rules, and regulations of all governmental authorities, the
violation of which could have a material adverse effect upon the business,
financial condition, operating results, employee or customer relations or
prospects of, or otherwise with respect to of the Company or its Subsidiaries.
7.12. Amendment to the Certificate of Incorporation and the By-
Laws. The Company will perform and be in compliance with and observe all of
the provisions set forth in its Certificate of Incorporation and By-Laws to the
extent that the performance of such obligations is legally permissible;
provided that the fact that performance is not legally permissible will not
prevent such nonperformance from constituting an event of default under this
Agreement. Except with the consent of the Purchaser Representative, the Company
will not amend its Certificate of Incorporation or By-Laws or any Certificate
of Designations for any other series of Preferred Stock of the Company so as to
affect adversely the rights of Purchasers under the
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Operative Documents, the Certificate of Incorporation, the By-Laws, or the
Preferred Shares. The provisions of this Section 7.12 shall not be deemed to
prohibit (i) a combination of the outstanding shares of Common Stock effected
at the Company's 1999 annual meeting of stockholders for purposes of satisfying
applicable NASD listing standards so long as the ratio applicable to such
combination shall have been consented to by the Purchaser Representative (which
consent shall not be unreasonably withheld) or (ii) the amendment of the
Company's charter documents to reduce the minimum number of the Company's
Directors so long as such revised minimum number shall have been consented to
by the Purchaser Representative and, following such alteration, the Company is
in compliance with (A) all applicable NASD listing standards (or the listing
standards of any national securities exchange on which the Common Stock is
listed) and (B) Section 7.20(a).
7.13. Merger; Sale of Assets. The Company shall, and, except as
set forth on Schedule 7.13, shall cause its Subsidiaries not to, not become a
party to any merger, consolidation or reorganization, or sell, lease, license,
sublicense or otherwise dispose of all or substantially all of its assets,
without the prior approval of the Purchaser Representative.
7.14. Acquisition. The Company shall, and shall cause its
Subsidiaries not to, acquire any interest in any business from any person, firm
or entity (whether by a purchase of assets, purchase of stock, merger or
otherwise) without the prior approval of the Purchaser Representative, except
the acquisition of 1% or less of any class of outstanding securities of a
company whose securities are listed on a national securities exchange or which
has not fewer than 1,000 stockholders and except as otherwise specifically
permitted pursuant to the provisions of this Agreement.
7.15. Dividends; Distributions; Repurchases of Common Stock;
Treasury Stock. The Company shall, and shall cause its Subsidiaries not to,
declare or pay any dividends on, or make any other distribution with respect
to, its capital stock, whether now or hereafter outstanding, or purchase,
acquire, redeem or retire any shares of its capital stock, without the consent
of the Purchaser Representative, provided, however, the foregoing shall not
prohibit any dividend, distribution, purchase, acquisition, redemption or
retirement of, or with respect to, any Preferred Shares in accordance with the
Certificate of Designations.
7.16. Consents and Waivers. (a) The Company has obtained all
consents and waivers needed to enable it to perform all of its obligations
under the Operative Agreements and the transactions contemplated hereby.
(b) The Company has obtained from all holders of options,
warrants and other securities of the Company having any right of first refusal,
offer, sale, negotiation or similar rights or antidilution or other rights
(other than the holders of the Company's Class B Warrants) to have the terms
(including, without limitation, conversion or exercise prices or rates) of such
instruments adjusted by virtue of the purchase and sale of the Preferred Shares
and the Warrants or the other transactions contemplated by the Operative
Documents, a written waiver in form and substance satisfactory to Purchasers
and their counsel.
7.17. Taxes and Liens. The Company shall, and shall cause its
Subsidiaries to, duly pay and discharge when payable, all taxes, assessments
and governmental charges imposed upon or against the Company and its
Subsidiaries or their properties, or any part thereof or upon the income or
profits therefrom, in each case before the same become delinquent and before
penalties accrue thereon, as well as all claims for labor, materials or
supplies which if unpaid might by law become a lien upon any of their property,
unless and to the extent that the same are being contested in good faith and by
appropriate proceedings and the Company and the Subsidiaries has set aside on
its books adequate reserves with respect thereto.
7.18. Restrictive Agreement. The Company covenants and agrees
that subsequent to the Closing, it shall, and shall cause its Subsidiaries not
to, be a party to any agreement or instrument which by its terms would restrict
the Company's performance of its obligations pursuant to this Operative
Documents, the Certificate of Incorporation or By-laws of the Company, the
Preferred Shares or the Warrants.
7.19. Business Plan. Commencing with the Company's fiscal year
commencing January 1, 1999, the Company's Chief Financial Officer shall prepare
or have prepared and submit to the Board of
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Directors not less than 60 days prior to the beginning of each fiscal year of
the Company, an updated business plan (the "Business Plan") for such year which
shall set forth the Company's and its Subsidiaries' product development,
marketing and servicing plans, capital expenditures and expense budgets and
shall encompass a statement of long range strategy over a five-year period and
short-range tactics over a two-year period. The Business Plan shall specify
quantitative and qualitative goals for the Company and its Subsidiaries and
relate the attainment of those goals to the Company's and its Subsidiaries'
strategic objectives.
7.20. Director and Observer. (a) The Purchaser Representative
shall be entitled to designate a Director to the Board of Directors of the
Company. If necessary, the Board of Directors of the Company will elect such
person to the Board of Directors by creating a new position on the Board of
Directors promptly following such person's nomination by the Purchaser
Representative and shall nominate such person for election in connection with
any stockholder vote for Directors, and the Company will use its best efforts
to ensure that the stockholders of the Company agree to vote all their
securities in favor of such person's election. The Company agrees to vote all
voting securities for which the Company holds proxies, granting it voting
discretion, or is otherwise entitled to vote, in favor of, and to use its best
efforts in all respect to cause, the election of each such individual proposed
by the Purchaser Representative. In the event that a vacancy is created on the
Board of Directors at any time by the death, disability, resignation or removal
(with or without cause) of any such individual proposed and nominated by the
Purchaser Representative pursuant to this Agreement, the Company will, and will
use its best efforts to ensure that the stockholders of the Company, vote all
its voting securities to elect the individual proposed by the Purchaser
Representative to fill such vacancy and serve as a voting Director. Any
Director or observer of the Purchaser Representative pursuant to this Article 8
shall enter into a mutually satisfactory confidentiality agreement containing
reasonable terms and conditions and similar in form and substance to that
agreed to by each other Director of the Company. Such Director (or observer)
shall also be subject to the terms and conditions of the Company's policies on
trading restrictions.
(b) In addition to the rights set forth in Section 7.20(a), from
and after the First Closing Date, until such time as Purchasers or their
Affiliates shall not beneficially own any securities of the Company, the
Purchasers shall be entitled to designate nonvoting observers who shall be
entitled to attend all meetings of the Board of Directors and any of its
committees and who shall be provided (i) reasonable prior notice of all
meetings of the Board of Directors and any of its committees, (ii) reasonable
prior notice of any action that the Board of Directors or any of its committees
may take by written consent, (iii) promptly delivered copies of all minutes and
other records of action by, and all written information furnished to, the Board
of Directors or any of its committees and (iv) any other information requested
by such observer which a member of the Board of Directors would be entitled to
request to discharge his or her duties. Such observers shall be entitled to the
same rights to expense reimbursement for attendance at meeting as any outside
Director.
(c) If the Purchaser Representative gives notice to the Company
that the Purchasers desire to remove a Director proposed by the Purchasers or
the Purchaser Representative pursuant to this Agreement, the Company shall, and
shall use its best effort to ensure that the stockholders of the Company shall,
vote all its voting securities in favor of removing such Director if a vote of
holders of such securities shall be required to remove the Director, and the
Company agrees to take any action necessary to facilitate such removal.
(d) Each Director nominated by the Purchasers shall be entitled
to the same type and an amount of compensation at least equal to the highest
amount payable to any other Director for serving in such capacity.
(e) Concurrently with either Closing Date, if requested by the
Purchaser Representative, the Company shall have caused the appointment of the
initial Directors nominated by the Purchaser Representative, to its Board of
Directors in accordance with the provisions of this Section 7.20, which
individuals shall be identified in writing to the Company by such time.
(f) At any time that a designee of the Purchaser Representative
serves on the Company's Board of Directors, the Purchasers shall be entitled to
representation on any committee of the Board of Directors proportionate with
their representation of the Board as a whole.
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7.21. Board of Directors. (a) The Company shall promptly
reimburse each Director or observer of the Company designated by the Purchaser
Representative who is not an employee of the Company for all of his reasonable
expenses incurred in attending each meeting of the Board of Directors of the
Company or any committee thereof.
(b) The Company shall at all times maintain provisions in its
By-laws and/or Certificate of Incorporation indemnifying all directors against
liability and absolving all directors from liability to the Company and its
stockholders to the maximum extent permitted under the laws of the State of
Delaware.
(c) The By-laws of the Company shall always contain provisions
consistent with the provisions of this Section 7.21 except to the extent this
Section 7.21 deals with the possible observer.
(d) For so long as any designee of the Purchaser Representative
is a director of the Company, procure and maintain director and officer
liability insurance in adequate amounts with a reputable insurance carrier.
7.22. No Subsidiaries. Except for extant Subsidiaries, the
Company will not create or acquire any entity that would be a Subsidiary (as
defined in Section 9.11 without the prior written consent of the Purchaser
Representative.
7.23. Publicity. (a) The Company shall not issue any press
release or make any other public announcement with respect to this Agreement or
the transactions contemplated hereby or utilizing the names of Purchasers or
their officers, directors, employees, agents or Affiliates without obtaining
the prior approval of Purchasers, except as may be required by law or the
regulations of any securities exchange or the Nasdaq National Market.
(b) Except as may be required by law or the regulations of any
securities exchange or the Nasdaq National Market, the Company shall not
disclose the names, identity, addresses or any other information regarding each
of Purchasers or any of its officers, directors, employees, shareholders,
nominees and/or designees without such Purchaser's prior written consent;
provided, however, that a copy of this Agreement with all exhibits hereto may
be filed with the SEC by the Company and that the name of each Purchaser (but
not its address) may be disclosed in the Shelf Registration Statement.
(c) After the First Closing Date, upon request of the Purchaser
Representative, the Company shall cause, at its sole expense, the immediate
publication of a "tombstone" advertisement in the Wall Street Journal (National
Edition) announcing the consummation of this Agreement and the transactions
contemplated herein, the exact form and substance of which shall be mutually
agreed upon by the Company and the Purchaser Representative.
7.24. Restriction on Securities. (a) During the 18 months
following the First Closing Date, the Company shall not, and shall cause its
Subsidiaries not to, without prior written consent of the Purchaser
Representative, issue, offer or sell any of its equity or debt securities
(including, without limitation, any securities convertible into or exercisable
for such securities); provided that the Company may issue (i) shares of Common
Stock pursuant to an Equity Purchase Agreement on the terms described on
Schedule 7.24 (the "Equity Purchase Agreement"), it being understood that the
Purchasers shall possess a right of first refusal with respect to the Equity
Purchase Agreement as set forth in Section 7.26, and (ii) shares of Common
Stock upon conversion or exercise of the Company's outstanding securities and
pursuant to exercise of options under the Option Plans in accordance with the
terms of such plan (it being agreed that the issuance of any additional options
under such plan may be effected only with the prior written consent of the
Purchaser Representative). This Section 7.24 shall not apply to the offerings
to be conducted by the Company with Paramount acting as placement agent or in
connection with the Paramount Agreements or the issuance of Common Stock
pursuant to the terms of the Certificate of Designations, the Warrants or the
Warrants issuable to Paramount pursuant to the Paramount Agreements. During the
18-months following the First Closing Date, the Company shall not, and shall
cause its Subsidiaries not to, without the prior written consent of the
Purchaser Representative, offer or sell any of its debt or equity securities in
reliance on Regulation S of the Securities Act. During the 36-
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month period following the First Closing Date, the Company will not extend the
expiration date or lower the exercise price of any options or warrants, or take
any similar action with respect to any convertible securities of the Company,
without the prior written consent of the Purchaser Representative.
(b) Prior to the First Closing Date, the Company shall obtain
the written agreement of all executive officers and directors of the Company
(i) to "lock-up" all of the shares of Common Stock owned by each of them at any
time until the later of (x) 24 months following the First Closing Date and (y)
six months following the effective date of the Shelf Registration Statement
relating to the Additional Preferred Shares and Additional Warrants, (ii) not
directly or indirectly, issue, agree or offer to sell, grant an option for the
purchase or sale, assign, sell, contract to sell, sell "short" or "short
against the box" (as those terms are generally understood), pledge,
hypothecate, distribute or otherwise encumber or dispose of, any such shares
(including options, rights, warrants or other securities convertible into,
exchangeable, exercisable for or evidencing any right to purchase or subscribe
for shares of capital stock of the Company (whether or not beneficially owned
by such person) or any beneficial interest therein of any shares of the Common
Stock, (iii) not directly or indirectly purchase, contract to purchase or
otherwise acquire any shares of Common Stock during the 30 Trading Days prior
to the Reset Date, all in form and substance satisfactory to Purchasers and
their counsel.
7.25. Restriction on Liens. The Company shall not, and shall
cause its Subsidiaries not to, create or permit the imposition of any liens on
any of their assets from and after the First Closing Date without the prior
written consent of the Purchaser Representative.
7.26. Right of First Refusal (a) If the Company wishes to
enter into the Equity Purchase Agreement, in whole or in part, it shall first
give a written notice (the "Notice") to the Purchasers specifying (x) the
amount of the funds which the Company wishes to raise and (y) the equity shares
that it is offering for sale pursuant to the Equity Purchase Agreement (the
"Equity Amount"), containing an irrevocable offer (open to acceptance for a
period of 30 days after the date such Notice is received) to enter into an
Equity Purchase Agreement for the Equity Amount on terms consistent with
Schedule 7.24 and which shall be stated in the Notice (the "Terms").
(b) The Purchasers shall have the right to purchase all or a
portion of the Equity Amount; provided, however, that the Purchasers must,
within 5 days after receipt of the Notice, determine the portion of the Equity
Amount it is willing to purchase.
(c) If the offer is accepted by the Purchasers, the Purchasers
shall provide the Company with written notice of such acceptance specifying the
Equity Amount as to which the Purchasers are accepting (a "Notice of
Acceptance") within 30 days of receipt of the Notice.
(d) The closing of the purchase by the Purchasers of the
Equity Amount pursuant to this Section 7.26 shall take place at the principal
offices of the Purchaser Representative on the date chosen by the Purchasers
which date shall, except as otherwise provided in this Section 7.26, in no
event be more than 30 days after the Notice of Acceptance is given. At such
closing, the Purchasers shall deliver to the Company against delivery of duly
endorsed certificates representing the securities being sold a certified check
or checks in the appropriate amount. Such securities shall be delivered to the
Purchasers free and clear of all liens, claims, charges, security interests,
options, adverse claims or other legal or equitable encumbrances.
(e) To the extent the Purchasers' ability to consummate the
transactions to contemplated by the Equity Purchase Agreement as provided
herein (i) is limited by any law, statute, regulation, order, writ, injunction,
decree, rule, regulation, policy or guideline promulgated, or judgment entered,
by any federal, state, local or foreign court or governmental authority
applicable to the Purchasers; or (ii) would constitute or cause a material
breach or default (immediately or with notice or lapse of time or both) of any
agreement or instrument to which the Purchasers is a party or by which the
Purchasers or any of their assets are bound, the Purchasers shall have the
option to purchase any equity securities not acquired by it pursuant to this
Section 7.24 on the date chosen by the Purchasers (not later than the 15th
business day) after such date as the Purchasers learn that it is no longer so
restricted from acquiring such securities.
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(f) If, at the end of the 30th day after the Notice is
received, the Purchasers have not delivered an effective Notice of Acceptance
of the offer contained in such Notice, or if it has delivered a Notice of
Acceptance covering less than all the Equity Amount, then the Company shall
have 30 days in which to enter into an Equity Purchase Agreement for the Equity
Amount not accepted for purchase by the Purchasers, at a price not lower than
the Terms and on terms not more favorable to the prospective purchaser than
those contained in the Notice, to any third party. Promptly after any
transaction pursuant to this Section 7.26, the Company shall notify the
Purchasers of the consummation thereof and shall furnish such evidence of the
completion and time of completion of such transaction and of the terms thereof
as the Purchasers may reasonably request. If, at the end of such 30-day
period, the Company has not completed the transaction for any or all of such
Equity Amount, the Company shall no longer be permitted to enter into a third
party Equity Purchase Agreement pursuant to this Section 7.26 without again
complying with this Section in its entirety. If the Company determines at any
time within such 30-day period that the transaction with respect to any or all
of such Equity Amount at a price not lower than the Terms and on terms not more
favorable to the third party than those contained in the Notice is impractical,
the Company may terminate all attempts to enter into such arrangement and
recommence the procedures of this Section in their entirety without waiting for
the expiration of such 30-day period by delivering written notice of such
decision to the Purchasers.
(g) The Purchasers shall have the right to assign, at any
time, its right to purchase all or a portion of the Equity Amount pursuant to
this Section 7.26 to any affiliate of such Purchasers or the Purchaser
Representative. Upon such assignment, such assignee shall assume all the same
rights and obligations of the Purchasers under this Section 7.26.
7.27. Restrictions on Indebtedness. The Company shall not, and
shall cause its Subsidiaries not to, incur, create, assume or permit to exist
any indebtedness except (i) indebtedness represented by the obligations of the
Company under Section 13 of the Certificate of Designations and Section 7.28,
(ii) pursuant to equipment lease financings with commercial banks or Persons
whose business consists in substantial part of engaging in such financings,
(iii) pursuant to customary accounts receivable and inventory financing in the
ordinary course of business, (iv) in an amount less than $25,000 incurred in
the ordinary course of business, provided that subsequent to the effectiveness
of the Shelf Registration Statement (as defined in Section 8.1), so long as the
Company has not less than $1,000,000 of cash and cash-equivalents, the
incurrence of indebtedness with respect to a transaction or series of
transactions not to exceed $100,000 in the ordinary course of business shall be
permitted, and (v) indebtedness for borrowed money existing on the date hereof
and disclosed in writing to the Purchasers, but not any extensions, renewals or
replacements of such indebtedness.
7.28. Repayment Upon Certain Events. In the event that (a) the Company
does not initiate the meeting of its shareholders for the purpose of obtaining
the Required Shareholder Approvals by May 28, 1999, (b) the Company does not
obtain the Required Shareholder Approvals at such meeting or by 30 days
following such meeting if such meeting is adjourned in good faith by the
Company in accordance with the Company's By-laws, (c) the Shelf Registration
Statement has not become effective by the Outside Target Date (as defined in
Section 8.6), or any other Redemption Event (as defined in Section 13 of the
Certificate of Designations) occurs, the Company shall effect the redemption of
the Series B Preferred Stock in accordance with the terms of the Certificate of
Designations and Purchasers shall be entitled to retain the Warrants issued to
them.
7.29. Required Shareholder Approvals. The Company will use its best
efforts to notice and hold a stockholders meeting as promptly as practicable
and in any event not later than May 28, 1999, to obtain any stockholder
approvals required by the Company (including those required by all applicable
agreements between the Company and the National Association of Securities
Dealers ("NASD") or the rules of the Nasdaq National Market), including,
without limitation to allow for issuance of all securities to the Purchasers
and Paramount in connection with or contemplated by the Operative Documents and
the Paramount Agreements. The "Required Shareholder Approvals" shall mean the
authorization and approval by the holders of the transactions contemplated by
the Operative Documents and the Paramount Agreements, including issuance of the
Preferred Shares, the Warrants and the Common Shares issuable pursuant to the
terms of the Preferred Shares and the Warrants, to the extent such
authorization is necessary to comply with any rule or
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regulation of the NASD, the Nasdaq National Market or any other or any other
applicable law, rule or regulation of any regulatory agency or applicable stock
exchange or market.
8. Registration of Common Stock.
8.1. Registration. (i) Not later than 30 days after the First Closing Date,
the Company will file with the SEC a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of the Registrable
Securities beneficially owned by Purchasers following the First Closing. Not
later than 30 days following the Second Closing Date, the Company will amend
the Shelf Registration Statement to include the Registrable Securities
beneficially owned by Purchasers as a consequence of the Second Closing. The
Company will use its best efforts to effect the registrations, qualifications
or compliances (including, without limitation, the execution of any required
undertaking to file post-effective amendments, appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with applicable securities laws, requirements or regulations) as may be
reasonably requested and as would permit or facilitate that sale and
distribution of all Registrable Securities until the distribution thereof is
complete; provided that the Company shall not be obligated to maintain the
effectiveness of the Shelf Registration Statement (and any related
qualifications and compliance) following the earlier of (x) the third
anniversary of the last Closing Date and (y) at such time as the Company shall
deliver an opinion of counsel reasonably satisfactory to the holders of
Registrable Securities (such holders, including, without limitation, the
holders of the Placement Warrants, are referred to as the "Holders') and in
form and substance satisfactory to each Holder that (i) such Holders may sell
in a single transaction all Registrable Securities then held or issuable to
such Holder on a registered securities exchange or Nasdaq market under an
applicable exemption from the registration requirements of the Securities Act
and all other applicable securities laws and (ii) all transfer restrictions and
restrictive legends with respect to such Registrable Securities will be removed
upon the consummation of such sale. Holders of Common Stock acquired pursuant
to the Equity Purchase Agreement shall be permitted to include their shares of
Common Stock in the Shelf Registration Statement provided that, in the event
the holders of Registrable Securities elect to retain an underwriter in
connection with the distribution contemplated by the Shelf Registration
Statement, the inclusion in the Shelf Registration Statement of shares of
Common Stock issued pursuant to the Equity Purchase Agreement shall be
conditioned on such underwriter consenting thereto (which consent may be
conditioned upon, among any other factors deemed relevant by such underwriter,
the holders of such shares of Common Stock disposing of such shares of Common
Stock pursuant to the related underwriting agreement).
8.2. Registration Procedures. In connection with the
registration of any Registrable Securities under the Securities Act as provided
in this Section 8, the Company will use its best efforts, as expeditiously as
possible:
(a) Prepare and file with the SEC the Shelf Registration
Statement with respect to such Registrable Securities and use its best efforts
to cause such Shelf Registration Statement to become effective as expeditiously
as possible but in any event by the Targeted Effective Date (as such term is
defined in Section 8.6(b));
(b) Prepare and file with the SEC such amendments and
supplements to such Shelf Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Shelf Registration
Statement effective until the disposition of all securities in accordance with
the intended methods of disposition by the seller or sellers thereof set forth
in such Shelf Registration Statement shall be completed, and to comply with the
provisions of the Securities Act (to the extent applicable to the Company) with
respect to such dispositions;
(c) Furnish to each seller of such Registrable Securities such
number of copies of such Shelf Registration Statement and of each such
amendment and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus included in such Shelf Registration
Statement (including each preliminary prospectus), in conformity with the
requirements of the Securities Act, and such other
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documents, as such seller may reasonably request, in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(d) Use its best efforts to register or qualify such Registrable
Securities covered by such Shelf Registration Statement under such other
securities or blue sky laws of such jurisdictions as any seller reasonably
requests, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such seller, except
that the Company will not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it would
not, but for the requirements of this Section 8.2(d) be obligated to be
qualified, to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction;
(e) Provide a transfer agent and registrar for all such
Registrable Securities covered by such Shelf Registration Statement not later
than the effective date of such Shelf Registration Statement;
(f) Notify each seller of such Registrable Securities at any
time when a prospectus relating thereto 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 Shelf Registration Statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of any such seller, the Company
will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each
securities exchange or automated over-the-counter trading system on which
similar securities issued by the Company are then listed;
(h) Enter into such customary agreements (including, in the
event Purchasers elect to engage an underwriter in connection with the Shelf
Registration Statement, an underwriting agreement containing customary terms
and conditions) and take all such other actions as reasonably required in order
to expedite or facilitate the disposition of such Registrable Securities; and
(i) Make available for inspection by any seller of Registrable
Securities, all financial and other records, pertinent corporation documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller in
connection with the Shelf Registration Statement pursuant to Section 8.1.
8.3 Registration and Selling Expenses. (a) All expenses
incurred by the Company in connection with the Company's performance of or
compliance with this Section 8, including, without limitation (i) all
registration and filing fees (including all expenses incident to filing with
the National Association of Securities Dealers, Inc.), (ii) blue sky fees and
expenses, (iii) all necessary printing and duplicating expenses, (iv) all fees
and disbursements of counsel and accountants retained by the Company (including
the expenses of any audit of financial statements) and (v) a single counsel
retained by the Purchaser Representative on behalf of Purchasers to represent
all Purchasers (all such expenses being called "Registration Expenses"), will
be paid by the Company except as otherwise expressly provided in this Section
8.3.
(b) The Company will, in any event, in connection with any
registration statement, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal, accounting or other duties in connection therewith and expenses of
audits of year-end financial statements), the expense of liability insurance
and the expenses and fees for listing the securities to be registered on one or
more securities exchanges or automated over-the-counter trading systems on
which similar securities issued by the Company are then listed.
(c) Nothing in this Agreement shall be construed to prevent any
Holder or Holders of Registrable Securities from retaining such counsel as they
shall choose at their own expense.
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8.4. Other Public Sales and Registrations. The Company agrees
that it will not, on its own behalf, file or cause to become effective any
other registration of any of its securities under the Securities Act or
otherwise effect a public sale or distribution of its securities (except
pursuant to registration on Form S-8 or any successor form relating to a
special offering to the employees or security holders of the Company) until at
least 180 days have elapsed after the effective date of the Shelf Registration
Statement.
8.5. Indemnification. (a) The Company shall indemnify, to the
extent permitted by law, each holder of Registrable Securities, its officers
and directors, if any, and each person, if any, who controls such holder within
the meaning of the Securities Act, against all losses, claims, damages,
liabilities and expenses (under the Securities Act or common law or otherwise)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus (and as amended or
supplemented if the Company has furnished any amendments or supplements
thereto) or any preliminary prospectus, which registration statement,
prospectus or preliminary prospectus shall be prepared in connection with the
registration contemplated by this Section 8, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or expenses are caused by any untrue
statement or alleged untrue statement contained in or by any omission or
alleged omission from information furnished in writing by such holder to the
Company in connection with the registration contemplated by this Section 8,
provided the Company will not be liable pursuant to this Section 8.5 if such
losses, claims, damages, liabilities or expenses have been caused by any
selling security holder's failure to deliver a copy of the registration
statement or prospectus, or any amendments or supplements thereto, after the
Company has furnished such holder with the number of copies required by Section
8.2(c).
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Company in writing such information as is reasonably requested
by the Company for use in any such registration statement or prospectus and
shall severally, but not jointly, indemnify, to the extent permitted by law,
the Company, its directors and officers and each person, if any, who controls
the Company within the meaning of the Securities Act, against any losses,
claims, damages, liabilities and expenses resulting from any untrue statement
or alleged untrue statement of a material fact or any omission or alleged
omission of a material fact required to be stated in the registration statement
or prospectus or any amendment thereof or supplement thereto or necessary to
make the statements therein not misleading, but only to the extent such losses,
claims, damages, liabilities or expenses are caused by an untrue statement or
alleged untrue statement contained in or by an omission or alleged omission
from information so furnished in writing by such holder in connection with the
registration contemplated by this Section 8. If the offering pursuant to any
such registration is made through underwriters, each such holder agrees to
enter into an underwriting agreement in customary form with such underwriters
and to indemnify such underwriters, their officers and directors, if any, and
each person who controls such underwriters within the meaning of the Securities
Act to the same extent as hereinabove provided with respect to indemnification
by such holder of the Company. Notwithstanding the foregoing or any other
provision of this Agreement, in no event shall a holder of Registrable
Securities be liable for any such losses, claims, damages, liabilities or
expenses in excess of the lesser of (a) the net proceeds received by such
holder in the offering or (b) $500,000.
(c) Promptly after receipt by an indemnified party under Section
8.5 (a) or (b) of notice of the commencement of any action or proceeding, such
indemnified party will, if a claim in respect thereof is made against the
indemnifying party under such Section, notify the indemnifying party in writing
of the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under such Section. In case any such action or
proceeding is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and, to the extent that it wishes, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel approved by such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under such Section for any legal or any other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof (other than reasonable costs of investigation) unless incurred at the
written request of the indemnifying party. Notwithstanding the above, the
indemnified party
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<PAGE> 24
will have the right to employ counsel of its own choice in any such action or
proceeding if the indemnified party has reasonably concluded that there may be
defenses available to it which are different from or additional to those of the
indemnifying party, or counsel to the indemnified party is of the opinion that
it would not be desirable for the same counsel to represent both the
indemnifying party and the indemnified party because such representation might
result in a conflict of interest (in either of which cases the indemnifying
party will not have the right to assume the defense of any such action or
proceeding on behalf of the indemnified party or parties and such legal and
other expenses will be borne by the indemnifying party). An indemnifying party
will not be liable to any indemnified party for any settlement of any such
action or proceeding effected without the consent of such indemnifying party.
(d) If the indemnification provided for in Section 8.5(a) or (b)
is unavailable under applicable law to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the Holders on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of the Holders on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Company or by the Holders and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages and liabilities referred to above shall be deemed to include,
subject to the limitations set forth in Section 8.5(c), any legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
(e) Promptly after receipt by the Company or any holder of
Securities of notice of the commencement of any action or proceeding, such
party will, if a claim for contribution in respect thereof is to be made
against another party (the "contributing party"), notify the contributing party
of the commencement thereof; but the omission so to notify the contributing
party will not relieve it from any liability which it may have to any other
party other than for contribution under this Agreement. In case any such
action, suit, or proceeding is brought against any party, and such party
notifies a contributing party of the commencement thereof, the contributing
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified.
8.6. Additional Common Stock Issuable Upon Delay of Registration
and Other Events. (a) Except to the extent any delay is due to the failure of
a Holder to reasonably cooperate in providing to the Company such information
as shall be reasonably requested by the Company in writing for use in the Shelf
Registration Statement, if the Shelf Registration Statement is not filed with
the SEC within 30 days following the Closing Date (the "Outside Target Date"),
the Company shall immediately declare and issue to each Holder (i) additional
Warrants equal to 1.5% of the Warrants then held by such Holder and (ii) an
amount equal to 1.5% of the liquidation preference pursuant to Section 3 of the
Certificate of Designations of the Preferred Shares then held or issuable to
such Holder, for each day after the Outside Target Date that the Registration
Statement remains unfiled.
(b) Except to the extent any delay is due to the failure of a
Holder to reasonably cooperate in providing to the Company such information as
shall be reasonably requested by the Company in writing for use in the Shelf
Registration Statement, if the Shelf Registration Statement is not declared
effective by the SEC by the Targeted Effective Date, the Company shall
immediately declare, issue and pay for no additional consideration to each
Holder (i) additional Warrants equal to 1.5% of the Warrants then held by such
Holder and (ii) an amount equal to 1.5% of the liquidation preference pursuant
to Section 3 of the Certificate of Designations of the Preferred Shares then
held or issuable to such Holder, for each day the Shelf Registration Statement
is not declared effective by the SEC following the occurrence of the Targeted
Effective Date. As used herein, "Targeted Effective Date" shall mean the 90th
day after the Closing Date, provided that in the
24
<PAGE> 25
event the SEC does not provide comments to the Company (or declare the Shelf
Registration Statement Effective) within (i) 35 days after the initial filing
of the Shelf Registration Statement or (ii) seven days after the filing of any
pre-effective amendment to the Shelf Registration Statement, so long as the
Company has used reasonable efforts to respond promptly to any comments pending
at the time a pre-effective amendment to the Shelf Registration Statement is
filed, the Targeted Effective Date shall be deferred for a number of days equal
to the number of days by which the SEC's response time exceeded 35 days or
seven days, as applicable.
(c) Except to the extent any delay is due to the failure of a
Holder to reasonably cooperate in providing to the Company such information as
shall be reasonably requested by the Company in writing for use in the Shelf
Registration Statement, following the declaration of the effectiveness of the
Shelf Registration Statement by the SEC, if the Shelf Registration Statement is
not maintained by Company during the period required by Section 8.1 for more
than five Trading Days (as such term is defined in the Certificate of
Designations), the Company shall immediately declare and issue to each Holder
(i) additional Warrants equal to 1.5% of the Warrants then held by such Holder
and (ii) an amount equal to 1.5% of the liquidation preference pursuant to
Section 3 of the Certificate of Designations of the Preferred Shares then held
or issuable to such Holder, for each additional Trading Day that the Shelf
Registration Statement is not effective.
(d) All shares of Common Stock issuable pursuant to this Section
8.6 shall be duly authorized, fully paid and nonassessable shares of Common
Stock and shall be included in the Shelf Registration Statement contemplated by
Section 8.1. Such shares shall be registered in Purchasers' names or the name
of the nominee(s) of Purchasers in such denominations as Purchasers shall
request pursuant to instructions delivered to the Company.
(e) All shares of Preferred Stock issuable upon exercise of the
Placement Warrants shall be deemed to be outstanding and to constitute
outstanding Preferred Shares for purposes of this Section 8.6.
9. Certain Definitions. For the purposes of this Agreement,
the following terms have the respective meanings set forth below:
9.1. "Affiliate" means any person, corporation, firm or entity
that directly or indirectly controls, is controlled by, or is under common
control with the indicated person, corporation, firm or entity.
9.2. "Common Stock" means the Company's Common Stock.
9.3. "Generally Accepted Accounting Principles" means generally
accepted accounting principles consistently applied.
9.4. "Officers' Certificate" means a certificate executed on
behalf of the Company by its President, Chairman of the Board, Chief Executive
Officer, Chief Financial Officer or Secretary.
9.5. "Person" shall mean any natural person and any
corporation, partnership, joint venture, limited liability company or other
legal person, but shall not include any governmental entity.
9.6. "Registrable Securities" means (i) the shares of Common
Stock issuable upon exercise of the Warrants and the warrants issuable upon
exercise of the Unit Purchase Option, (ii) the shares of Common Stock issuable
upon conversion of Preferred Stock (including without limitation the shares of
Common Stock issuable upon conversion of the Preferred Stock issuable upon
exercise of the Unit Purchase Option), (iii) any shares of Common Stock issued
in satisfaction of dividends accrued on the Preferred Stock and (iv) any other
shares of Common Stock now owned or hereafter acquired by Purchasers (whether
Common Stock owned directly or underlying securities of the Company that are
convertible or exchangeable directly or indirectly for shares of Common Stock)
or Paramount. Without limitation of the foregoing, any shares of Common Stock
issued pursuant to Section 8.6 or Section 13 of the Certificate of Designations
shall be deemed to be Registrable Securities and the Company shall promptly
amend the Shelf Registration Statement to include such shares in the Shelf
Registration Statement contemplated by Section 8.1 after their issuance.
25
<PAGE> 26
9.7. "Securities" means the Preferred Shares, the Common
Shares, the Warrants and any Preferred Stock or Common Stock underlying the
foregoing whether issued at the Closing or thereafter or pursuant to the
Placement Warrants.
9.8. "Securities Act" means, as of any given time, the
Securities Act of 1933, as amended, or any similar federal law then in force.
9.9. "Securities Exchange Act" means, as of any given time, the
Securities Exchange Act of 1934, as amended, or any similar federal law then in
force.
9.10. "SEC" shall mean the United States Securities and Exchange
Commission and includes any governmental body or agency succeeding to the
functions thereof.
9.11. "Subsidiary" means any person, corporation, firm or entity
at least the majority of the equity securities (or equivalent interest) of
which are, at the time as of which any determination is being made, owned of
record or beneficially by the Company, directly or indirectly, through any
Subsidiary or otherwise.
10.1 Company Indemnities. (a) The Company agrees to
indemnify, defend and hold Purchasers and their officers, directors, partners,
employees, consultants and agents (the "Purchasers' Indemnitees") harmless from
and against any liability, obligation, claim, cost, loss, judgment, damage or
expense (including reasonable legal fees and expenses) (collectively,
"Liabilities") incurred or suffered by any of Purchasers' Indemnitees as a
result of or arising out of or in connection with the Company's breach of any
representation, warranty, covenant or agreement of the Company contained in
this Agreement.
11. Miscellaneous.
11.1. Termination; Survival of Representations, Warranties and
Covenants. Except as otherwise provided for in this Agreement all
representations, warranties, covenants and agreements contained in this
Agreement, or in any document, exhibit, schedule or certificate by any party
delivered in connection herewith shall survive the execution and delivery of
this Agreement and the Closing Dates and the consummation of the transactions
contemplated hereby, regardless of any investigation made by Purchasers or on
their behalf.
11.2. Expenses. The Company shall pay all its own expenses in
connection with this Agreement and the transactions contemplated herein. The
Company agrees to pay promptly and save the Purchasers harmless against
liability for the payment all expenses incurred by the Company and the
Purchasers in connection with the preparation and consummation of the Agreement
and the transactions contemplated herein, including but not limited to: all
costs and expenses under Section 8, including without limitation, the costs of
preparing, printing and filing with the SEC the Shelf Registration Statement
and amendments, post-effective amendments, and supplements thereto; preparing,
printing and delivering exhibits thereto and copies of the preliminary, final
and supplemental prospectuses; preparing, printing and delivering all selling
documents, including but not limited to the subscription agreement, the warrant
agreement and stock and warrant certificates; legal fees and disbursements of
the Purchasers' counsel (which amount shall be offset against payment of the
purchase price for legal fees that have been accrued up to such date and the
remainder of which shall be paid within 30 days of submission of any statements
therefor) in connection with the preparation and consummation of this Agreement
and the transactions contemplated herein, including the legal fees and costs of
negotiating and drafting any transaction documents, due diligence and any
necessary regulatory filings (including, without limitation, the Shelf
Registration Statement, Forms 3, 4 and 5 and Schedule 13-D or -G filings); the
cost of a total of three sets of bound closing volumes for the Purchasers and
their counsel; and the cost of the tombstone advertisement in the Wall Street
Journal (National Edition) pursuant to Section 7.23(c). The provisions of this
Section shall survive any termination of this Agreement in all instances,
including without limitation, (i) if the transactions contemplated by this
Agreement have not been consummated or (ii) if the transactions have been
terminated by Purchasers for any reason.
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<PAGE> 27
11.3. Amendments and Waivers. The Operative Documents, the
exhibits and schedules thereto and the Paramount Agreements set forth the
entire agreement and understanding among the parties as to the subject matter
hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them. This Agreement may be
amended only by mutual written agreement of the Company and the Purchaser
Representative, and the Company may take any action herein prohibited or omit
to take any action herein required to be performed by it, and any breach of any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or waiver of the Purchaser
Representative. No course of dealing between or among any persons having any
interest in this Agreement will be deemed effective to modify, amend or
discharge any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement. "Purchaser Representative" shall mean a
representative of Purchasers, elected by the Majority Holders, identified to
the Company in writing from time to time by Paramount. "Majority Holders" shall
mean the holders of a majority of the shares of Common Stock issuable pursuant
to the terms of the Preferred Stock, the Warrants (other than shares issuable
as dividends on the Preferred Stock, except to the extent outstanding). It is
agreed and understood that the Purchaser Representative shall act solely on
behalf of Purchasers and that the Purchaser Representative shall have no
duties, obligations or liabilities whatsoever to the Company by virtue of
acting as such.
11.4. Successors and Assigns. This Agreement may not be
assigned by the Company except with the prior written consent of the Purchaser
Representative. This Agreement shall be binding upon and inure to the benefit
of the Company and its permitted successors and assigns and Purchasers and
their successors and assigns. The provisions hereof which are for Purchasers'
benefit as purchasers or holders of the Preferred Shares and the Warrants are
also for the benefit of, and enforceable by, any subsequent holder of such
Preferred Shares and Warrants.
11.5. Notices. All notices, demands and other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given personally or when
mailed by certified or registered mail, return receipt requested and postage
prepaid, and addressed to the addresses of the respective parties set forth
below or to such changed addresses as such parties may have fixed by notice;
provided, however, that any notice of change of address shall be effective only
upon receipt:
If to the Company:
Neoprobe Corporation
425 Metro Place North, Suite 300
Dublin, OH 43017-1367
Attn: David C. Bupp
With a Copy to:
Benesch, Friedlander, Coplan & Aronoff LLP
Suite 900
88 East Broad Street
Columbus, OH 43215
Attention: Robert S. Schwartz
If to the Purchasers:
The Aries Master Fund
The Aries Domestic Fund
in care of Paramount Capital Asset Management, Inc.
787 Seventh Avenue, 48th Floor
New York, NY 10019
Attn: Michael S. Weiss
27
<PAGE> 28
With a Copy to:
Roberts, Sheridan & Kotel,
A Professional Corporation
Tower Forty-Nine
12 East 49th Street, 30th Floor
New York, NY 10017
Attention: Ira L. Kotel
11.6. Governing Law; Consent to Jurisdiction. The validity,
performance, construction and effect of this Agreement shall be governed by
those laws of the State of New York which are applicable to agreements that are
negotiated, executed, delivered and performed solely in the State of New York.
The parties hereto irrevocably consent to the jurisdiction of the courts of the
State of New York and of any federal court located in such State in connection
with any action or proceeding arising out of or relating to this Agreement, any
document or instrument delivered pursuant to, in connection with or
simultaneously with this Agreement, or a breach of this Agreement or any such
document or instrument. In any such action or proceeding, each party hereto
waives personal service of any summons, complaint or other process and agrees
that service thereof may be made in accordance with the notice provisions of
Section 11.5. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the party so served shall appear or answer such summons,
complaint or other process.
11.7. Counterparts. This Agreement may be executed in any
number of counterparts and, notwithstanding that any of the parties did not
execute the same counterpart, each of such counterparts shall, for all
purposes, be deemed an original, and all such counterparts shall constitute one
and the same instrument binding on all of the parties thereto.
11.8. Headings. The headings of the Sections are inserted as a
matter of convenience and for reference only and in no way define, limit or
describe the scope of this Agreement or the meaning of any provision hereof.
11.9. Severability. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent
necessary to delete such illegal, invalid or unenforceable provision unless the
provision held invalid shall substantially impair the benefit of the remaining
portion of this Agreement.
11.10. Freedom of Action. (a) The Purchasers and their
Affiliates shall not have any obligation to the Company not to (i) engage in
the same or similar activities or lines of business as the Company or develop
or market any products, services or technologies that does or may in the future
compete, directly or indirectly, with those of the Company, (ii) invest or own
any interest publicly or privately in, or develop a business relationship with,
any corporation, partnership or other person or entity engaged in the same or
similar activities or lines or business as, or otherwise in competition with,
the Company or (iii) do business with any client, collaborator, licensor,
consultant, vendor or customer of the Company. The Purchasers and their
officers, directors, employees or former employees and Affiliates shall not
have any obligation, or be liable, to the Company solely on account of the
conduct described in the preceding sentence. It is agreed and understood that
the preceding sentence shall not limit the obligations to the Company under
applicable law of any person acting as a director of the Company. In the event
that any Purchaser or any officer, director, employee or former employee or
Affiliate thereof acquires knowledge of a potential transaction, agreement,
arrangement or other matter which may be a corporate opportunity for a
Purchaser and the Company, no Purchaser or officer, director, employee or
former employee or Affiliate thereof shall have any duty to communicate or
offer such corporate opportunity to the Company and no Purchaser or officer,
director, employee or former employee or Affiliate thereof shall be liable to
the Company for breach of any fiduciary duty, as a stockholder or otherwise,
solely by reason of the fact that such Purchaser or officer, director, employee
or former employee or Affiliate thereof pursues or acquires such corporate
opportunity for any such person or entity, directs such corporate opportunity
to another person or entity or communicates or fails to
28
<PAGE> 29
communicate such corporate opportunity to the Company. As used in this Section,
Purchasers shall mean any, some or all of the Purchasers and their Affiliates
(excluding the Company and the Subsidiaries as Affiliates of the Purchasers).
(b) The provisions of this Section 11.10 shall be enforceable to
the fullest extent permitted by law.
11.11. Exculpation Among Purchasers and Holders. Each Purchaser
acknowledges and agrees that it is not relying upon any other Purchaser, or any
officer, director, employee partner or affiliate of any such other Purchaser,
in making its investment or decision to invest in the Company or in monitoring
such investment. Each Purchaser agrees that no Purchaser nor any controlling
person, officer, director, stockholder, partner, agent or employee of any
Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them relating to or in connection with the
Company or the securities, or both.
11.12. Actions by Purchasers. Any actions permitted to be taken
by holders or Purchasers of Preferred Shares, Common Shares, Common Stock,
and/or Warrants or otherwise by any Purchaser and any consents required to be
obtained from the same under this Agreement, may be taken or given only by, in
the case of consents or actions requiring approval of a Purchaser, by the
applicable Purchaser, and in all other cases, except to the extent inconsistent
with any explicit provision of this Agreement, only by the Purchaser
Representative.
29
<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
NEOPROBE CORPORATION
By: /s/ David C. Bupp
-----------------------------------------
Name: David C. Bupp
Title: President and Chief Executive
Officer
THE ARIES MASTER FUND,
a Cayman Island exempted Company
By: /s/ Lindsay A. Rosenwald
-------------------------------------
Name:
Title:
THE ARIES DOMESTIC FUND, L.P.
By: /s/ Lindsay A. Rosenwald
-------------------------------------
Name:
Title:
30
<PAGE> 31
EXHIBIT A
<TABLE>
<CAPTION>
Name Initial Initial
- ----
$ Amount Preferred Shares Warrants
-------- ---------------- --------
<S> <C> <C> <C>
The Aries Master Fund, a 2,100,000 21,000 2,038,835
Cayman Island exempted
Company
The Aries Domestic Fund, L.P. 900,000 9,000 873,786
</TABLE>
31
<PAGE> 1
Exhibit 10.1.33
SCHEDULE IDENTIFYING OMITTED DOCUMENTS
The only particulars in which the attached instrument differs from the
omitted instrument are the name of the holder and the number of shares of
common stock, par value $.001 ("Common Stock"), of the Registrant which may be
acquired upon the exercise of the instrument.
The holder of the omitted instrument is the Aries Domestic Fund, L.P.
The number of shares of Common Stock which may be acquired upon the
exercise of the omitted instrument is 873,786.
<PAGE> 2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID
ACT.
Neoprobe Corporation
Warrant for the Purchase of Shares of
Common Stock
No. L-1 2,038,835 Shares
FEBRUARY 16, 1999
FOR VALUE RECEIVED, NEOPROBE CORPORATION, a Delaware corporation
(the "COMPANY"), hereby certifies that THE ARIES MASTER FUND, a Cayman Island
exempted , L.P. (the "HOLDER"), its designee or its permitted assigns is
entitled to purchase from the Company, at any time or from time to time
commencing on FEBRUARY 16, 1999, and prior to 5:00 P.M., New York City time, on
FEBRUARY 16, 2006, TWO MILLION THIRTY-EIGHT THOUSAND EIGHT HUNDRED THIRTY FIVE
(2,038,835), subject to adjustment as hereinafter provided, fully paid and non-
assessable shares of common stock, $.001 par value per share, of the Company
for an initial aggregate purchase price of $2,100,000. (Hereinafter, (i) said
common stock, $.001 par value per share, of the Company, is referred to as the
"COMMON STOCK", (ii) the shares of the Common Stock purchasable hereunder or
under any other Warrant (as hereinafter defined) are referred to as the
"WARRANT SHARES", (iii) the aggregate purchase price payable for the Warrant
Shares purchasable hereunder is referred to as the "AGGREGATE WARRANT PRICE",
(iv) the price payable (initially $1.03 per share, subject to adjustment) for
each of the Warrant Shares hereunder is referred to as the "PER SHARE WARRANT
PRICE", (v) this Warrant, all similar Warrants issued on the date hereof and
all warrants hereafter issued in exchange or substitution for this Warrant or
such similar Warrants are referred to as the "WARRANTS", (vi) the holder of
this Warrant is referred to as the "HOLDER" and the holder of this Warrant and
all other Warrants and Warrant Shares are referred to as the "HOLDERS" and
Holders of more than fifty percent (50%) of the outstanding Warrants and
Warrant Shares are referred to as the "MAJORITY OF THE HOLDERS"), (vii) the
then Current Market Price per share of the Common Stock (the "CURRENT MARKET
PRICE") shall be deemed to be the last sale price of the Common Stock on the
trading day prior to such date or, in case no such reported sales take place on
such day, the average of the last reported bid and asked prices of the Common
Stock on such day, in either case on the principal national securities exchange
on which the Common Stock is admitted to trading or listed, or if not listed or
admitted to trading on any such exchange, the representative closing sale price
of the Common Stock as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ"), or other similar
organization if NASDAQ is no longer reporting such information, or, if the
Common Stock is not reported on NASDAQ, the high per share sale price for the
Common Stock in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or if not so available, the fair
market value of the Common Stock as determined in good faith by the board of
directors, and "TRADING DAY" shall mean a day on which NASDAQ is open for the
transaction of business or the reporting of trades. The Aggregate Warrant
Price is not subject to adjustment. The Per Share Warrant Price is subject to
adjustment as hereinafter provided; in the event of any such adjustment, the
number of Warrant Shares deliverable upon exercise of this Warrant shall be
adjusted by dividing the Aggregate Warrant Price by the Per Share Warrant Price
in effect immediately after such adjustment.
1
<PAGE> 3
This Warrant, together with warrants of like tenor, constituting
in the aggregate Warrants to purchase 2,912,612 Warrant Shares, was originally
issued pursuant to a Preferred Stock and Warrant Purchase Agreement (the
"Purchase Agreement") between the Company and the Holder in connection with the
Holder's purchase of units in a private placement (THE "OFFERING") of an
aggregate of thirty (30) units (THE "OFFERING UNITS"), each Offering Unit
consisting of (a) 1,000 shares of 5% Series B Preferred Stock (the "PREFERRED
STOCK"), $100.00 stated value, and (b) 97,087 Class L Warrants to purchase
97,087 shares of Common Stock.
1. EXERCISE OF WARRANT.
(a) This Warrant may be exercised in whole at any time, or in
part from time to time, commencing on February 16, 1999 and prior to 5:00 P.M.,
Eastern Standard Time, on February 16, 2009 by the Holder:
(i) by the surrender of this Warrant (with the
subscription form at the end hereof duly executed) at the address
set forth in Section 12(a) hereof, together with proper payment of
the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part, with payment for the Warrant
Shares made by certified or official bank check payable to the
order of the Company; or
(ii) by the surrender of this Warrant (with the cashless
exercise form at the end hereof duly executed) (a "CASHLESS
EXERCISE") and payment of $.001 per Warrant Share at the address
set forth in Section 12(a) hereof. Such presentation and
surrender shall be deemed a waiver of the Holder's obligation to
pay the Aggregate Warrant Price, or the proportionate part thereof
if this Warrant is exercised in part. In the event of a Cashless
Exercise, the Holder shall exchange its Warrant for that number of
Warrant Shares subject to such Cashless Exercise multiplied by a
fraction, the numerator of which shall be the difference between
the then Current Market Price and the Per Share Warrant Price, and
the denominator of which shall be the then Current Market Price.
For purposes of any computation under this Section 1(a), the then
Current Market Price shall be based on the trading day prior to
the Cashless Exercise.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock and the Holder is
entitled to receive a new Warrant covering the Warrant Shares that have not
been exercised and setting forth the proportionate part of the Aggregate
Warrant Price applicable to such Warrant Shares. Upon surrender of this
Warrant, the Company will (i) issue a certificate or certificates in the name
of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled and, if this Warrant is exercised in whole,
in lieu of any fractional share of the Common Stock to which the Holder shall
be entitled, pay to the Holder cash in an amount equal to the fair value of
such fractional share (determined in such reasonable manner as the board of
directors of the Company shall determine), and (ii) deliver the other
securities and properties receivable upon the exercise of this Warrant, or the
proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that, prior
to the expiration of this Warrant, the Company shall at all times (a) have
authorized and in reserve, and shall keep available, solely for issuance and
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer, other than under Federal or state securities laws, and free and clear
of all preemptive rights and rights of first refusal and (b) use its best
efforts to keep the Warrant Shares authorized for listing on the Nasdaq
National Market, the Nasdaq SmallCap Market or any national securities exchange
on which the Company's Common Stock is traded.
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<PAGE> 4
3. PROTECTION AGAINST DILUTION.
(a) If, at any time or from time to time after the date of this
Warrant, the Company shall issue or distribute to any holder of shares of
Common Stock evidence of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common
Stock, referred to in Section 3(b), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in the full
amount thereof (any such non-excluded event being herein called a "SPECIAL
DIVIDEND")), the Per Share Warrant Price shall be adjusted by multiplying the
Per Share Warrant Price then in effect by a fraction, the numerator of which
shall be the then Current Market Price in effect on the record date of such
issuance or distribution less the fair market value (as determined in good
faith by the Company's board of directors) of the evidence of indebtedness,
cash, securities or property, or other assets issued or distributed in such
Special Dividend applicable to one share of Common Stock and the denominator of
which shall be the then Current Market Price in effect on the record date of
such issuance or distribution. An adjustment made pursuant to this Subsection
3(a) shall become effective immediately after the record date of any such
Special Dividend.
(b) In case the Company shall hereafter (i) pay a dividend or make a
distribution to any holder of its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Per Share Warrant Price shall be
adjusted to be equal to a fraction, the numerator of which shall be the
Aggregate Warrant Price and the denominator of which shall be the number of
shares of Common Stock or other capital stock of the Company that the Holder
would have owned immediately following such action had such Warrant been
exercised immediately prior thereto. An adjustment made pursuant to this
Subsection 3(b) shall become effective immediately after the record date in the
case of a dividend or distribution, and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(c) Except as provided in Subsections 3(a) and 3(d), in case the
Company shall hereafter issue or sell any Common Stock, any securities
convertible into Common Stock, any rights, options or warrants to purchase or
otherwise receive an issuance of Common Stock or any securities convertible
into, or exercisable or exchangeable for, Common Stock, in each case for a
price per share or entitling the holders thereof to purchase Common Stock at a
price per share (determined by dividing (i) the total amount, if any, received
or receivable by the Company in consideration of the issuance or sale of such
securities plus the total consideration, if any, payable to the Company upon
exercise thereof (the "TOTAL CONSIDERATION") by (ii) the number of additional
shares of Common Stock issued, sold or issuable upon exercise of such
securities) that is less than either the then Current Market Price in effect on
the date of such issuance or sale or the Per Share Warrant Price, then the Per
Share Warrant Price shall be adjusted as of the date of such issuance or sale
by multiplying the Per Share Warrant Price then in effect by a fraction, the
numerator of which shall be (x) the sum of (A) the number of shares of Common
Stock outstanding on the record date of such issuance or sale plus (B) the
Total Consideration divided by the Current Market Price or the current Per
Share Warrant Price, whichever is greater, and the denominator of which shall
be (y) the number of shares of Common Stock outstanding on the record date of
such issuance or sale plus the maximum number of additional shares of Common
Stock issued, sold or issuable upon exercise or conversion of such securities.
(d) No adjustment in the Per Share Warrant Price shall be required in
the case of the issuance by the Company of Common Stock (i) pursuant to the
exercise of any warrant; (ii) pursuant to the exercise of any stock options or
warrants currently outstanding or securities issued after the date hereof,
which may be approved by the Company's board of directors pursuant to any
Company benefit plan or exercised, under any employee benefit plan of the
Company to officers, directors, consultants or employees, but only with respect
to such warrants or stock options as are exercisable at prices no lower than
the closing bid price of the Common Stock as of the date of grant thereof.
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<PAGE> 5
(e) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as a entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange
effected in connection with a merger of a third corporation into the Company),
the Holder of this Warrant shall have the right thereafter to receive on the
exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Section 3(e) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The Company shall require the
issuer of any shares of stock or other securities or property thereafter
deliverable on the exercise of this Warrant to be responsible for all of the
agreements and obligations of the Company hereunder. Notice of any such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and of said provisions so proposed to be made, shall be
mailed to the Holders of the Warrants not less than thirty (30) days prior to
such event. A sale of all or substantially all of the assets of the Company
for a consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(f) No adjustment in the Per Share Warrant Price shall be required
unless such adjustment would require an increase or decrease of at least $0.05
per share of Common Stock; provided, however, that any adjustments which by
reason of this Subsection 3(g) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided, further,
however, that adjustments shall be required and made in accordance with the
provisions of this Section 3 (other than this Subsection 3(g)) not later than
such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon the
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
Anything in this Section 3 to the contrary notwithstanding, the Company shall
be entitled to make such reductions in the Per Share Warrant Price, in addition
to those required by this Section 3, as it in its discretion shall deem to be
advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(g) Whenever the Per Share Warrant Price is adjusted as provided in
this Section 3 and Section 4 and upon any modification of the rights of a
Holder of Warrants in accordance with this Section 3, the Company shall
promptly prepare a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause copies of such
certificate to be mailed to the Holders of the Warrants. The Company may, but
shall not be obligated to unless requested by a Majority of the Holders,
obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the board of directors (who may
be the regular auditors of the Company) setting forth the Per Share Warrant
Price and the number of Warrant Shares in effect after such adjustment or the
effect of such modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and cause
copies of such certificate to be mailed to the Holders of the Warrants.
(h) If the board of directors of the Company shall declare any
dividend or other distribution with respect to the Common Stock other than a
cash distribution out of earned surplus, the Company shall mail notice thereof
to the Holders of the Warrants not less than ten (10) days prior to the record
date fixed for determining stockholders entitled to participate in such
dividend or other distribution.
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<PAGE> 6
(i) If, as a result of an adjustment made pursuant to this Section 3,
the Holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the board of directors
(whose determination shall be conclusive and shall be described in a written
notice to the Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant Price between or
among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
(j) Upon the expiration of any rights, options, warrants or
conversion privileges with respect to the issuance of which an adjustment to
the Per Share Warrant Price had been made, if such shall not have been
exercised, the number of Warrant Shares purchasable upon exercise of this
Warrant, to the extent this Warrant has not then been exercised, shall, upon
such expiration, be readjusted and shall thereafter be such as they would have
been had they been originally adjusted (or had the original adjustment not been
required, as the case may be) on the basis of (A) the fact that Common Stock,
if any, actually issued or sold upon the exercise of such rights, options,
warrants or conversion privileges, and (B) the fact that such shares of Common
Stock, if any, were issued or sold for the consideration actually received by
the Company upon such exercise plus the consideration, if any, actually
received by the Company for the issuance, sale or grant of all such rights,
options, warrants or conversion privileges whether or not exercised; provided,
however, that no such readjustment shall have the effect of decreasing the
number of Warrant Shares purchasable upon exercise of this Warrant by an amount
in excess of the amount of the adjustment initially made in respect of the
issuance, sale or grant of such rights, options, warrants or conversion
privileges.
(l) In case any event shall occur as to which the other provisions of
this Section 3 are not strictly applicable but as to which the failure to make
any adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof then, in
each such case, the Holders of Warrants representing the right to purchase a
majority of the Warrant Shares subject to all outstanding Warrants may appoint
a firm of independent public accountants of recognized national standing
reasonably acceptable to the Company, which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established herein, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described therein. The fees and expenses of such independent
public accountants shall be borne by the Company.
4. RESET OF PER SHARE WARRANT PRICE; ISSUANCE OF ADDITIONAL WARRANT SHARES.
(a) In the event (a "Reset Event") that on the date that is 12 months
from the issuance date of this Warrant (the "Reset Date"), the average closing
bid price of the Common Stock for the 20 trading days immediately preceding the
Reset Date (the "Reset Trading Price") is less than the Per Share Warrant Price
then in effect then:
(i) the Per Share Warrant Price shall be reset and adjusted to
equal the greater of (A) the Reset Trading Price and (B) fifty percent
(50%) of the Per Share Warrant Price then in effect (such Per Share
Warrant price as reset is referred to as the "Reset Price"); and
(ii) the number of Warrant Shares deliverable upon exercise of
this Warrant shall be adjusted by dividing the Aggregate Warrant Price by
the Reset Price.
(b) Upon the occurrence of a Reset Event, the Company shall inform
the Holder by written notice (the "Reset Notice") at the address set forth in
Section 10(b) (i) that a Reset Event has occurred, (ii) the Reset Price and
(iii) the number of Warrant Shares, as adjusted in accordance with Section
4(a)(ii), issuable upon exercise of this Warrant. The Company may request in
such Reset Notice that the Holder surrender this Warrant to the Company at the
address set forth in Section 10(a) for cancellation and issuance of a new
Warrant in the name of the Holder setting forth (x) the adjusted Per Share
Warrant Price and (y) the adjusted number of Warrant Shares issuable upon
exercise of this Warrant.
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<PAGE> 7
5. PER SHARE WARRANT PRICE FLOOR; CASH PAYOUT. For purposes of this
Warrant, "PER SHARE WARRANT PRICE FLOOR" shall mean 50% of the average Closing
Bid Price (as defined in the Purchase Agreement") of the Common Stock for the
five (5) trading days immediately prior to the Closing Date (as defined in the
Agreement). In the event that (a) the Common Stock trades at less than the Per
Share Warrant Price Floor on 60 or more trading days in any 12-month period
(irrespective of whether such trading days are consecutive), and (b) the Per
Share Warrant Price applicable to any exercise of Warrants that is effective as
of a date not later than the 12-month anniversary of the earliest of such 60
days is less than the Per Share Warrant Price Floor, the Company shall either
effect such exercise at the applicable Per Share Warrant Price or pay to the
holder of such Warrants, in cash, an amount (the "Cash Pay-Out Amount") equal
to the product of (x) the number of shares of Common Stock that would otherwise
be issuable upon such exercise and (y) the highest closing trade price for the
Common Stock during the period commencing on the date of the request for
exercise and ending on the day immediately prior to the date of payment of the
Cash Pay-Out Amount.
6. FULLY PAID STOCK; TAXES. The shares of the Common Stock represented by
each and every certificate for Warrant Shares delivered on the exercise of this
Warrant shall at the time of such delivery, be duly authorized, validly issued
and outstanding, fully paid and nonassessable, and not subject to preemptive
rights or rights of first refusal, and the Company will take all such actions
as may be necessary to assure that the par value, if any, per share of the
Common Stock is at all times equal to or less than the then Per Share Warrant
Price. The Company will pay, when due and payable, any and all Federal and
state stamp, original issue or similar taxes which may be payable in respect of
the issue of any Warrant Share or any certificate thereof to the extent
required because of the issuance by the Company of such security.
7. REGISTRATION UNDER SECURITIES ACT OF 1933. (a) The Holder shall have
the right to participate in the registration rights granted to Holders of
Registrable Securities (as defined in the Purchase Agreement") with respect to
the Warrant Shares, as adjusted. By acceptance of this Warrant, the Holder
agrees to comply with the provisions of Article 8 of the Purchase Agreement to
same extent as if it were a party thereto.
(b) Until all of the Warrant Shares, including additional Warrant
Shares issuable pursuant to Section 4 hereof, have been sold under a
registration statement declared effective by the Securities and Exchange
Commission or pursuant to Rule 144, the Company shall use its reasonable best
efforts to file with the Securities and Exchange Commission all current reports
and the information as may be necessary to enable the Holder to effect sales of
its shares in reliance upon Rule 144 promulgated under the Securities Act of
1933, as amended (the "Act").
8. MANDATORY EXERCISE. (a) At any time on or after the Reset Date, the
Company, at its option, may cause this Warrant to be exercised in whole into
fully paid and nonassessable shares of Common Stock if the closing price of the
Common Stock shall have exceeded 300% of the then applicable Per Share Warrant
Price for at least 20 trading days in the 30 consecutive trading day period
ending on the date on which the Company provides the Holder with notice in
accordance with Section 7(b) below. Any Warrants so converted shall be treated
as having been surrendered by the Holder for exercise pursuant to Section 1 on
the date of such mandatory exercise (unless previously converted at the option
of the Holder).
(b) Not more than 60 nor less than 20 days prior to the date of any
such mandatory exercise, notice by first class mail, postage prepaid, shall be
given to the Holder, addressed to the Holder at the addresses set forth in
Section 10(b). Each such notice shall specify the date fixed for exercise, the
place or places for surrender of Warrants and the Per Share Warrant Price then
in effect.
(c) The "closing price" for each trading day shall be the reported
last sales price regular way or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in either case on the NASDAQ or, if the Common Stock is not quoted on NASDAQ,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading (based on the aggregate dollar value of all
securities listed or admitted to trading) or, if not listed or admitted to
trading on any national securities exchange or quoted on NASDAQ, the average of
the closing
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<PAGE> 8
bid and asked prices in the over-the-counter market as furnished by any NASD
member firm selected from time to time by the Corporation for that purpose, or,
if such prices are not available, the fair market value set by, or in a manner
established by, the Board of Directors of the Corporation in good faith.
9. INVESTMENT INTENT; LIMITED TRANSFERABILITY.
(a) The Holder represents, by accepting this Warrant, that it
understands that this Warrant and any securities obtainable upon exercise of
this Warrant have not been registered for sale under Federal or state
securities laws and are being offered and sold to the Holder pursuant to one or
more exemptions from the registration requirements of such securities laws. In
the absence of an effective registration of such securities or an exemption
therefrom, any certificates for such securities shall bear the legend set forth
on the first page hereof. The Holder understands that it must bear the
economic risk of its investment in this Warrant and any securities obtainable
upon exercise of this Warrant for an indefinite period of time, as this Warrant
and such securities have not been registered under Federal or state securities
laws and therefore cannot be sold unless subsequently registered under such
laws, unless an exemption from such registration is available.
(b) The Holder, by its acceptance of this Warrant, represents to the
Company that it is acquiring this Warrant and will acquire any securities
obtainable upon exercise of this Warrant for its own account for investment and
not with a view to, or for sale in connection with, any distribution thereof in
violation of the Act. The Holder agrees that this Warrant and any such
securities will not be sold or otherwise transferred unless (i) a registration
statement with respect to such transfer is effective under the Act and any
applicable state securities laws or (ii) such sale or transfer is made pursuant
to one or more exemptions from the Act.
(c) In addition to the limitations set forth in Section 1(a) hereon,
this Warrant may not be sold, transferred, assigned or hypothecated by the
Holder except in compliance with the provisions of the Act and the applicable
state securities "blue sky" laws, and is so transferable only upon the books of
the Company which it shall cause to be maintained for such purpose. The
Company may treat the registered Holder of this Warrant as he or it appears on
the Company's books at any time as the Holder for all purposes. The Company
shall permit any Holder of a Warrant or his duly authorized attorney, upon
written request during ordinary business hours, to inspect and copy or make
extracts from its books showing the registered holders of Warrants. All
Warrants issued upon the transfer or assignment of this Warrant will be dated
the same date as this Warrant, and all rights of the holder thereof shall be
identical to those of the Holder.
10. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
11. WARRANT HOLDER NOT STOCKHOLDER. This Warrant does not confer upon the
Holder any right to vote on or consent to or receive notice as a stockholder of
the Company, as such, in respect of any matters whatsoever, nor any other
rights or liabilities as a stockholder, prior to the exercise hereof; this
Warrant does, however, require certain notices to Holders as set forth herein.
12. COMMUNICATION. No notice or other communication under this Warrant
shall be effective unless, but any notice or other communication shall be
effective and shall be deemed to have been given if, the same is in writing and
is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at 425 Metro Place North, Suite 300, Dublin,
Ohio 43017 Attn: President or such other address as the Company has
designated in writing to the Holder, or
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<PAGE> 9
(b) the Holder at c/o Paramount Capital Asset Management,
Inc., 787 Seventh Avenue, 48th Floor, New York, New York 10019 or other
such address as the Holder has designated in writing to the Company.
13. HEADINGS. The headings of this Warrant have been inserted as a matter
of convenience and shall not affect the construction hereof.
14. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the law of the State of New York without giving effect to the
principles of conflicts of law thereof.
15. AMENDMENT, WAIVER, ETC. Except as expressly provided herein, neither
this Warrant nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that any provisions hereof may be amended, waived,
discharged or terminated upon the written consent of the Company and the
Majority of the Holders.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its President and has caused its corporate seal to be hereunto affixed and
attested by its Secretary this 16TH day of FEBRUARY, 1999.
NEOPROBE CORPORATION
By: /s/ David C. Bupp
-----------------------------------------------
Name: David C. Bupp
Title: President and Chief Executive Officer
ATTEST:
/s/ Patricia A. Coburn
- ----------------------------------------
Patricia A. Coburn, Assistant Secretary
[Corporate Seal]
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<PAGE> 10
SUBSCRIPTION (CASH)
The undersigned, ___________________, pursuant to the provisions
of the foregoing Warrant, hereby agrees to subscribe for and purchase
____________________ shares of the Common Stock, par value $.001 per share, of
Neoprobe Corporation covered by said Warrant, and makes payment therefor in
full at the price per share provided by said Warrant.
Dated: Signature:
------------------ --------------------------
Address:
----------------------------
CASHLESS EXERCISE
The undersigned ___________________, pursuant to the provisions
of the foregoing Warrant, hereby elects to exchange its Warrant for
___________________ shares of Common Stock, par value $.001 per share, of
Neoprobe Corporation pursuant to the Cashless Exercise provisions of the
Warrant.
Dated: Signature:
------------------ --------------------------
Address:
----------------------------
ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby sells, assigns and
transfers unto ____________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of
Neoprobe Corporation
Dated: Signature:
------------------ --------------------------
Address:
----------------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby assigns and transfers
unto ____________________ the right to purchase _______ shares of Common Stock,
par value $.001 per share, of Neoprobe Corporation covered by the foregoing
Warrant, and a proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint ____________________,
attorney, to transfer such part of said Warrant on the books of Neoprobe
Corporation
Dated: Signature:
------------------ --------------------------
Address:
----------------------------
9
<PAGE> 1
Exhibit 10.1.34
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NEITHER SUCH SECURITIES NOR THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF NOR CONVERSION THEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
NEOPROBE CORPORATION
UNIT PURCHASE OPTION FOR THE PURCHASE OF SHARES OF Preferred
Stock and Warrants
NO. 1.5 OPTION UNITS FEBRUARY, 16, 1999
FOR VALUE RECEIVED, NEOPROBE CORPORATION, a Delaware corporation
(the "COMPANY"), hereby certifies that PARAMOUNT CAPITAL, INC., or permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on FEBRUARY 16, 1999 and prior to 5:00 P.M., New York City
time, on FEBRUARY 16, 2004, up to one and one-half (1.5) Option Units, each
Option Unit consisting of One Thousand (1,000) fully paid and non-assessable
share of the 5% Series B Convertible Preferred Stock, $.001 par value, $100.00
stated value, of the Company and Ninety Seven Thousand Eighty Seven (97,087)
Class L Warrants for an aggregate purchase price of $150,000 (computed on the
basis of $100,000 per Option Unit). Each Class L Warrant is exercisable to
purchase one (1) share of Common Stock, $.001 par value, of the Company for an
aggregate purchase price of $1.03 (computed on the basis of $1.03 per share of
Common Stock). (Hereinafter, (i) said Option Units are referred to as the
"OPTION UNITS", (ii) said 5% Series B Convertible Preferred Stock, together
with any other equity securities which may be issued by the Company with
respect thereto (other than on conversion thereof) or in substitution therefor,
is referred to as the "PREFERRED STOCK", (iii) said Class L Warrants are
referred to as the "WARRANTS", (iv) the Common Stock purchasable upon exercise
of the Warrants and into which the Preferred Stock is convertible, is referred
to as the "COMMON STOCK", (v) the shares of the Preferred Stock purchasable
hereunder or under any other Option (as hereinafter defined) are referred to as
the "PREFERRED SHARES", (vi) the shares of Common Stock purchasable upon
exercise of the Warrants or under any other Option (as hereinafter defined) are
referred to as the "WARRANT SHARES", (vii) the shares of Common Stock
purchasable hereunder or under any other Option (as hereinafter defined)
following the conversion of all shares of Preferred Stock underlying this
Option into Common Stock, or other capital stock of the Company as the case may
be, and each share of Common Stock, or other capital stock of the Company as
the case may be, receivable upon the exercise of the Warrants underlying this
Option are referred to as the "CONVERSION SHARES", (viii) the Common Stock or
other capital stock issuable upon exercise of one (1) Warrant Share or
conversion of one (1) share of Preferred Stock or Preferred Share, as the case
may be is referred to as a "SHARE", (ix) the aggregate purchase price payable
for the Option Units hereunder is referred to as the "AGGREGATE OPTION PRICE",
(x) the price payable (initially $100,000 per Option Unit, subject to
adjustment) for each of the Option Units, hereunder is referred to as the "PER
OPTION UNIT PRICE", (xi) the price payable (initially $1.03 per Warrant Share,
subject to adjustment) for each of the Warrant Shares, hereunder is referred to
as the "WARRANT EXERCISE PRICE", (xii) this Option, all similar Options issued
on the date hereof and all warrants hereafter issued in exchange or
substitution for this Option or such similar Options are
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<PAGE> 2
referred to as the "OPTIONS" and (xiii) the holder of this Option is referred
to as the "HOLDER" and the holder of this Option and all other Options, Warrant
Shares, Preferred Shares and Conversion Shares are referred to as the "HOLDERS"
and Holders of more than fifty percent (50%) of the outstanding Options are
referred to as the "MAJORITY OF THE HOLDERS." The Aggregate Option Price is
not subject to adjustment. The Per Option Unit Price is subject to adjustment
as hereinafter provided.
This Option, together with options of like tenor, constituting in
the aggregate Options to purchase 1.5 Option Units, was originally issued
pursuant to a financial advisory agreement between the Company and Paramount
Capital, Inc. ("PARAMOUNT ").
1. EXERCISE OF OPTION.
(a) This Option may be exercised, in whole at any time or in
part from time to time, commencing on February 16, 1999 and prior to 5:00 P.M.,
New York City time, on February 16, 2004 by the Holder:
(i) by the surrender of this Option (with the subscription
form at the end hereof duly executed) at the address set forth in Subsection
10(a) hereof, together with proper payment of the Aggregate Option Price, or
the proportionate part thereof if this Option is exercised in part, with
payment for the number of Option Units made by certified or official bank check
payable to the order of the Company; or
(ii) by the surrender of this Option (with the cashless
exercise form at the end hereof duly executed) (a "CASHLESS EXERCISE") at the
address set forth in Subsection 10(a) hereof. The Option Exchange shall take
place on the date specified in the Cashless Exercise Form or, if later, the
date the Cashless Exercise Form is surrendered to the Company (THE "EXCHANGE
DATE"). Such presentation and surrender shall be deemed a waiver of the
Holder's obligation to pay the Aggregate Option Price, or the proportionate
part thereof if this Option is exercised in part. In the event of a Cashless
Exercise this Option shall represent the right to subscribe for and acquire the
number of Option Units (rounded to the next highest integer) equal to (x) the
number of Option Units specified by the Holder in its Cashless Exercise Form up
to the maximum number of Option Units subject to this Option (THE "TOTAL
NUMBER") less (y) the number of Option Units equal to the quotient obtained by
dividing (A) the product of the Total Number and the existing Per Option Unit
Price by (B) the Market Price Per Option Unit. "MARKET PRICE PER OPTION UNIT"
shall mean first, if there is a trading market as indicated in Subsection (A)
below for the Option Units, such Market Price of the Units and if there is no
such trading market in the Options Units, then Market Price Per Option Unit
shall equal the sum of the aggregate Market Price of all shares of Preferred
Stock (the "MARKET PRICE PER SHARE OF PREFERRED STOCK") (or, as the case may
be, if after the Conversion Date (as hereinafter defined), the Common Stock)
(the "MARKET PRICE PER SHARE OF COMMON STOCK") and Warrants (the "MARKET PRICE
PER WARRANT") which comprise an Option Unit, with the meanings indicated in
Subsections (B) through (F) below.
(A) If the Option Units are listed on a national
securities exchange or listed or admitted to unlisted trading
privileges on such exchange or listed for trading on the Nasdaq
National Market or the Nasdaq Small Cap Market, the Market Price
Per Option Unit shall be the average of the last reported sale
price or the average of the last reported bid price of the Option
Units on such exchange or market for the twenty (20) consecutive
trading days ending with the Exchange Date; or
(B) If the Preferred Stock, Warrants or Common Stock
are listed on a national securities exchange or admitted to
unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market or the Nasdaq Small Cap
Market, the Market Price Per Share of Common Stock, or Market
Price Per Warrant, respectively,
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shall be the average of the last reported closing bid price of
Preferred Stock, Warrants or Common Stock, respectively, on such
exchange or market for the twenty (20) consecutive trading days
ending with the Exchange Date; or
(C) If the Preferred Stock, Warrants or Common Stock
are not so listed or admitted to unlisted trading privileges, the
Market Price Per Share of Common Stock, or Market Price Per
Warrant, respectively, shall be the average of the last reported
bid price of the Preferred Stock, Warrants or Common Stock for
the twenty (20) consecutive trading days ending with the Exchange
Date; or
(D) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid price is not so reported, the
Market Price Per Share of Common Stock shall be the fair market
value as determined by agreement between the Board of Directors
of the Company and a Majority of the Holders; or
(E) If the Preferred Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not
so reported, the Market Price Per Share of Preferred Stock shall
be the Market Price of the Common Stock multiplied by the then
effective "conversion rate" for the Preferred Stock (as defined
and used in the Articles), or if not so available, the fair
market value of the Preferred Stock as determined by agreement
between the Board of Directors of the Company and a Majority of
the Holders; or
(F) If the Warrants are not so listed or admitted to
unlisted trading privileges, and bid price is not so reported for
Warrants, then Market Price Per Warrants shall be an amount equal
to the difference between (i) the Market Price Per Shares of
Common Stock which may be received upon the exercise of the
Warrants, as determined herein, and (ii) the Warrant Exercise
Price.
(G) If the Company and the Majority of the Holders are
unable to reach agreement on any valuation matter, such valuation
shall be submitted to and determined by a nationally recognized
independent investment bank selected by the Board of Directors of
the Company and the Majority of the Holders (or, if such
selection cannot be agreed upon promptly, or in any event within
ten days, then such valuation shall be made by a nationally
recognized independent investment banking firm selected by the
American Arbitration Association in New York City in accordance
with its rules), the costs of which valuation shall be paid for
by the Company.
(b) If this Option is exercised in part, the Holder is
entitled to receive a new Option covering the Option Units, which have not been
exercised and setting forth the proportionate part of the Aggregate Option
Price applicable to such Option Units. Upon surrender of this Option, the
Company will (i) issue a certificate or certificates in the name of the Holder
for the largest number of whole shares of the Preferred Stock (or the
Conversion Shares following conversion of all the Preferred Stock) and Warrants
to which the Holder shall be entitled and, if this Option is exercised in
whole, in lieu of any fractional shares of the Preferred Stock (or the
Conversion Shares following conversion of all the Preferred Stock) or Warrants
to which the Holder shall be entitled, pay to the Holder cash in an amount
equal to the fair value of such fractional shares (determined in such
reasonable manner as the Board of Directors of the Company shall determine),
and (ii) deliver the other securities and properties receivable upon the
exercise of this Option, or the proportionate part thereof if this Option is
exercised in part, pursuant to the provisions of this Option.
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<PAGE> 4
(c) If this Option is exercised on or after the date on which
all shares of Preferred Stock have been converted into Conversion Shares (the
"Conversion Date"), then this Option shall be exercisable only for Warrants and
Conversion Shares at the then applicable Per Option Unit Price (including any
adjustment pursuant to Section 3 below).
2. RESERVATION OF WARRANT SHARES, PREFERRED SHARES AND
CONVERSION SHARES; LISTING. The Company agrees that, prior to the expiration
of this Option, the Company will at all times (a) have authorized and in
reserve, and will keep available, solely for issuance and delivery upon the
exercise of this Option, the Warrant Shares and the Preferred Shares and other
securities and properties as from time to time shall be receivable upon the
exercise of this Option, free and clear of all restrictions on sale or
transfer, other than under Federal or state securities laws, and free and clear
of all preemptive rights and rights of first refusal and (b) have authorized
and in reserve, and will keep available, solely for issuance or delivery upon
exercise of the Warrants and conversion of the Preferred Shares or the exercise
of this Option following the conversion of all Preferred Shares into Common
Stock, the shares of Common Stock and other securities and properties as from
time to time shall be receivable upon such exercise and conversion, free and
clear of all restrictions on sale or transfer, other than under Federal or
state securities laws, and free and clear of all preemptive rights and rights
of first refusal; and (c) if the Company hereafter lists its Common Stock on
any national securities exchange, use its best efforts to keep the Conversion
Shares authorized for listing on such exchange upon notice of issuance.
3. PROTECTION AGAINST DILUTION.
(a) The anti-dilution provisions of the Warrant shall protect
the Holder from dilution of the purchase rights represented by the Warrants.
Prior to the Conversion Date and in addition to the protection set forth in the
Articles and the protection set forth in 3(a)(iv), the following anti-dilution
provisions shall protect the Holder from dilution resulting from the issuance
of Preferred Stock, Common Stock and Common Stock equivalents:
(i) If at any time or from time to time after the date of this
Option, the Company shall issue or distribute to any holder of shares of
Preferred Stock evidence of its indebtedness, any other securities of the
Company or any cash, property or other assets (excluding a subdivision,
combination or reclassification, or dividend or distribution payable in shares
of Preferred Stock, referred to in Subsection 3(a)(ii), and also excluding cash
dividends or cash distributions paid out of net profits legally available
therefor in the full amount thereof (any such non-excluded event being herein
called a "PREFERRED STOCK SPECIAL DIVIDEND")), the Per Option Unit Price shall
be adjusted by multiplying the Per Option Unit Price then in effect by a
fraction, the numerator of which shall be the then current Market Price Per
Option Unit in effect on the record date, or the date of effectiveness, as the
case may be, of such issuance or distribution less the fair market value (as
determined in good faith by the Company's Board of Directors) of the evidence
of indebtedness, cash, securities or property, or other assets issued or
distributed in such Preferred Stock Special Dividend applicable to one share of
Preferred Stock and the denominator of which shall be the then current Market
Price Per Option Unit in effect on the record date, or the date of
effectiveness, as the case may be, of such issuance or distribution. An
adjustment made pursuant to this Subsection 3(a)(i) shall become effective
immediately after the record date, or the date of effectiveness, as the case
may be, of any such Preferred Stock Special Dividend.
(ii) In case the Company shall hereafter (A) pay a dividend or
make a distribution on its capital stock in shares of Preferred Stock, (B)
subdivide its outstanding shares of Preferred Stock into a greater number of
shares, (C) combine its outstanding shares of Preferred Stock into a smaller
number of shares or (D) issue by reclassification of its Preferred Stock any
shares of capital stock of the Company
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<PAGE> 5
(other than the Conversion Shares), the Per Unit Price shall be adjusted by
multiplying the Per Unit Price by a fraction, the numerator of which shall be
the number of shares of Preferred Stock or other capital stock of the Company
which this Option was convertible into prior to such action and the denominator
of which shall be the number of shares of Preferred Stock or other capital
stock of the Company which he would have owned immediately following such
action had such Option been exercised immediately prior thereto. An adjustment
made pursuant to this Subsection 3(a)(ii) shall become effective immediately
after the record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(iii) Except as provided in Subsections 3(a)(i) and 3(f), in
case the Company shall hereafter issue or sell any Preferred Stock, any
securities convertible into Preferred Stock, any rights, options or warrants to
purchase Preferred Stock or any securities convertible into Preferred Stock, in
each case for a price per share or entitling the holders thereof to purchase
Preferred Stock at a price per share (determined by dividing (A) the total
amount, if any, received or receivable by the Company in consideration of the
issuance or sale of such securities plus the total consideration, if any,
payable to the Company upon exercise or conversion thereof (the "PREFERRED
STOCK TOTAL CONSIDERATION") by (B) the number of additional shares of Preferred
Stock issuable upon exercise or conversion of such securities) which is less
than either the then current Market Price Per Option Unit in effect on the date
of such issuance or sale or the Per Option Unit Price, the Per Option Unit
Price shall be adjusted as of the date of such issuance or sale by multiplying
the Per Option Unit Price then in effect by a fraction, the numerator of which
shall be (x) the sum of (A) the number of shares of Preferred Stock outstanding
on the record date, or the date of effectiveness, as the case may be, of such
issuance or sale plus (B) the Preferred Stock Total Consideration divided by
the Market Price of the Preferred Stock or the Per Option Unit Price, whichever
is greater, and the denominator of which shall be (y) the number of shares of
Preferred Stock outstanding on the record date, or the date of effectiveness,
as the case may be, of such issuance or sale plus the maximum number of
additional shares of Preferred Stock issued, sold or issuable upon exercise or
conversion of such securities.
(iv) Notwithstanding the anti-dilution provisions set forth in
Subsections 3(a)(i)-(iii), if an event set forth in Subsections 3(a)(i)-(iii)
(a "TRIGGER EVENT") shall occur, and provided that the anti-dilution provisions
of the Preferred Stock, as set forth in the Articles, shall apply to such
Trigger Event, then any adjustments as a result of the Trigger Event shall
occur as follows: (A) first, the anti-dilution provisions, as set forth in the
Articles shall apply; and (B) second, the anti-dilution provisions set forth in
Subsections 3(a)(i)-(iii) shall apply to the extent that the application of
such provisions shall result in the Holder receiving additional shares of
capital stock of the Company, having the Per Option Unit Price reduced or
otherwise further improve the economic position of the Holder.
(b) Upon the conversion of all the Preferred Stock into Common
Stock the Per Option Unit Price shall be adjusted to be equal to a fraction,
the numerator of which shall be the Aggregate Option Price and the denominator
of which shall be the number of shares of Common Stock or other capital stock
of the Company which the Holder would have owned immediately following such
conversion had this Option been exercised (assuming a cash exercise)
immediately prior thereto (the PRE-CONVERSION SHARES"). In addition, after the
Conversion Date, the following anti-dilution provisions shall protect the
Holder from dilution resulting from the issuance of Common Stock and/or Common
Stock equivalents:
(i) If the Company shall issue or distribute to any holder of
shares of Common Stock evidence of its indebtedness, any other securities of
the Company or any cash, property or other assets (excluding a subdivision,
combination or reclassification, or dividend or distribution payable in shares
of Common Stock, referred to in Subsection 3(b)(ii), and also excluding cash
dividends or cash distributions paid out of net profits legally available
therefor in the full amount thereof (any such non-excluded event being herein
called a "COMMON STOCK SPECIAL DIVIDEND")), the Per Option Unit Price shall be
adjusted by multiplying the Per Option Unit Price then in effect by a fraction,
the numerator of which shall be the then
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<PAGE> 6
current Market Price Per Option Unit in effect on the record date, or the date
of effectiveness, as the case may be, of such issuance or distribution less the
fair market value (as determined in good faith by the Company's Board of
Directors) of the evidence of indebtedness, cash, securities or property, or
other assets issued or distributed in such Common Stock Special Dividend
applicable to one share of Common Stock and the denominator of which shall be
the then current Market Price Per Option Unit in effect on the record date, or
the date of effectiveness, as the case may be, of such issuance or
distribution. An adjustment made pursuant to this Subsection 3(b)(i) shall
become effective immediately after the record date, or the date of
effectiveness, as the case may be, of any such Common Stock Special Dividend.
(ii) If the Company shall (A) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (B) subdivide its
outstanding shares of Common Stock into a greater number of shares, (C) combine
its outstanding shares of Common Stock into a smaller number of shares or (D)
issue by reclassification of its Common Stock any shares of capital stock of
the Company (other than the Conversion Shares), the Per Option Unit Price shall
be adjusted to be equal to a fraction, the numerator of which shall be the
Aggregate Option Price and the denominator of which shall be the number of
shares of Common Stock or other capital stock of the Company which he would
have owned immediately following such action had such Option been exercised
immediately prior thereto. An adjustment made pursuant to this Subsection
3(b)(ii) shall become effective immediately after the record date in the case
of a dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(iii) Except as provided in Subsections 3(b)(i) and 3(f), in
case the Company shall issue or sell any Common Stock, any securities
convertible into Common Stock, any rights, options or warrants to purchase
Common Stock or any securities convertible into Common Stock, in each case for
a price per share or entitling the holders thereof to purchase Common Stock at
a price per share (determined by dividing (A) the total amount, if any,
received or receivable by the Company in consideration of the issuance or sale
of such securities plus the total consideration, if any, payable to the Company
upon exercise or conversion thereof (the "COMMON STOCK TOTAL CONSIDERATION") by
(B) the number of additional shares of Common Stock issuable upon exercise or
conversion of such securities) which is less than either the then current
Market Price Per Option Unit in effect on the date of such issuance or sale or
the Per Option Unit Price, the Per Option Unit Price shall be adjusted as of
the date of such issuance or sale by multiplying the Per Option Unit Price then
in effect by a fraction, the numerator of which shall be (x) the sum of (I) the
number of shares of Common Stock outstanding on the record date of such
issuance or sale plus (II) the Total Consideration divided by the current
Market Price of the Common Stock or the current Per Option Unit Price,
whichever is greater, and the denominator of which shall be (y) the number of
shares of Common Stock outstanding on the record date, or the date of
effectiveness, as the case may be, of such issuance or sale plus the maximum
number of additional shares of Common Stock issued, sold or issuable upon
exercise or conversion of such securities.
(c) No adjustment in the Per Option Unit Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per Option Unit; provided, however, that any adjustments which by
reason of this Section 3(c) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided, further,
however, that adjustments shall be required and made in accordance with the
provisions of this Section 3 (other than this Subsection 3(c)) not later than
such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Option. All calculations under this Section
3 shall be made to the nearest cent or to the nearest 1/100th of a share, as
the case may be. Anything in this Section 3 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the Per Option Unit
Price, in addition to those required by this Section 3, as it in its discretion
shall deem to be advisable in order that any stock dividend, subdivision of
shares or distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
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<PAGE> 7
(d) Whenever the Per Option Unit Price is adjusted as provided
in this Section 3 and upon any modification of the rights of a Holder of
Options in accordance with this Section 3, the Company shall promptly prepare a
brief statement of the facts requiring such adjustment or modification and the
manner of computing the same and cause copies of such certificate to be mailed
to the Holders of the Options. The Company may, but shall not be obligated to
unless requested by a Holders of more than fifty percent (50%) of the
outstanding Options, Preferred Shares, Warrant Shares and Conversion Shares,
obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular auditors of the Company) setting forth the Per Option Unit Price
and the number of Warrants and Preferred Shares or Conversion Shares, as the
case may be, after such adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Options.
(e) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Preferred Stock or Common
Stock other than a cash distribution out of earned surplus, the Company shall
mail notice thereof to the Holders of the Options not less than 10 days prior
to the record date fixed for determining stockholders entitled to participate
in such dividend or other distribution.
(f) No adjustment in the Per Option Unit Price shall be
required in the case of the issuance by the Company of Preferred Stock (or, if
after the Conversion Date, Common Stock) (i) pursuant to the exercise of any
Option or (ii) pursuant to (A) the exercise of any stock options or warrants
currently outstanding or (B) securities issued after the date hereof pursuant
to any Company benefit plan; provided, however, that with respect to Subsection
3(f)(ii), the issuance of such securities were approved by the Board of
Directors of the Company and were issued at a price no less than the Conversion
Price or the Market Price of the securities on the date of issuance.
(g) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as a entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), the Holder of this Option shall have the right thereafter to receive
on the exercise of this Option the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Option been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Option to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Option. The above provisions of this Subsection 3(g) shall similarly
apply to successive reorganizations, reclassifications, consolidations,
mergers, statutory exchanges, sales or conveyances. The Company shall require
the issuer of any shares of stock or other securities or property thereafter
deliverable on the exercise of this Option to be responsible for all of the
agreements and obligations of the Company hereunder. Notice of any such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and of said provisions so proposed to be made, shall be
mailed to the Holders of the Options not less than 30 days prior to such event.
A sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
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<PAGE> 8
(h) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Option thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Preferred Stock (or if after the Conversion Date, Common Stock) and
other capital stock of the Company, the Board of Directors (whose determination
shall be conclusive and shall be described in a written notice to the Holder of
any Option promptly after such adjustment) shall determine the allocation of
the adjusted Per Option Unit Price between or among shares or such classes of
capital stock or shares of Preferred Stock (or if after the Conversion Date,
Common Stock) and other capital stock.
(i) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
Option Units purchasable upon exercise of this Option, to the extent this
Option has not then been exercised, shall, upon such expiration, be readjusted
and shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may be)
on the basis of (i) the fact that Common Stock, or the Preferred Stock, as the
case may be, if any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion privileges, and (ii) the fact that such shares
of Common Stock or the Preferred Stock, as the case may be, if any, were issued
or sold for the consideration actually received by the Company upon such
exercise plus the consideration, if any, actually received by the Company for
the issuance, sale or grant of all such rights, options, warrants or conversion
privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of decreasing the number of Option Units
purchasable upon exercise of this Option by an amount in excess of the amount
of the adjustment initially made in respect of the issuance, sale or grant of
such rights, options, warrants or conversion privileges.
(j) Whenever the Per Option Unit Price payable upon exercise
of each Option is adjusted pursuant to this Section 3, (i) the number of shares
of Preferred Stock (or if after the Conversion Date, Common Stock) included in
an Option Unit shall simultaneously be adjusted by multiplying the number of
shares of Preferred Stock (or if after the Conversion Date, Common Stock)
included in an Option Unit immediately prior to such adjustment by the Per
Option Unit Price in effect immediately prior to such adjustment and dividing
the product so obtained by the Per Option Unit Price, as adjusted and (ii) the
number of shares of Preferred Stock (or if after the Conversion Date, Common
Stock) or other securities issuable upon exercise of the Warrants included in
the Option Units and the Warrant Exercise Price shall be adjusted in accordance
with the applicable terms of the Warrant Agreement.
(k) In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Option in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Options representing
the right to purchase a majority of the Shares subject to all outstanding
Options may appoint a firm of independent public accountants of recognized
national standing reasonably acceptable to the Company, which shall give their
opinion as to the adjustment, if any, on a basis consistent with the essential
intent and principles established herein, necessary to preserve the purchase
rights represented by the Options. Upon receipt of such opinion, the Company
will promptly mail a copy thereof to the Holder of this Option and shall make
the adjustments described therein. The fees and expenses of such independent
public accountants shall be borne by the Company.
4. FULLY PAID STOCK; TAXES. The Company agrees that the
shares of the Preferred Stock represented by each and every certificate for
Preferred Shares delivered on the exercise of this Option and the shares of
Common Stock delivered upon the exercise of the Warrants or the conversion of
the Preferred Shares or the exercise of this Option following the conversion of
all shares of Preferred Stock into Common Stock, shall at the time of such
delivery, be validly issued and outstanding, fully paid and nonassessable, and
not subject to preemptive rights or rights of first refusal, and the Company
will take all such actions as may be necessary to assure that the par value or
stated value, if any, per share of the Preferred Stock and the Common Stock is
at all times equal to or less than the then Per Option Unit Price.
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<PAGE> 9
The Company further covenants and agrees that it will pay, when due and
payable, any and all Federal and state stamp, original issue or similar taxes
which may be payable in respect of the issue of any Warrant Share, Preferred
Share, Conversion Share or any certificate thereof to the extent required
because of the issuance by the Company of such security.
5. REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED.
(a) The Holder shall have the registration rights to the extent provided under
the Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement")
by and among the purchasers set forth on Exhibit A thereto and the Company,
dated as of February __, 1999. By acceptance of this Option, the Holder agrees
to comply with the provisions of the Purchase Agreement to same extent as if it
were a party thereto.
(b) Until all Conversion Shares have been sold under a
Registration Statement or pursuant to Rule 144, the Company shall use its
reasonable best efforts to file with the Securities and Exchange Commission all
current reports and the information as may be necessary to enable the Holder to
effect sales of its shares in reliance upon Rule 144 promulgated under the Act.
6. LIMITATIONS OF EXERCISE. Notwithstanding anything to the
contrary this Option may not be exercised if such exercise would cause the
total number of Common Shares deemed beneficially owned (as defined in Rule
13(d)(3) of the Securities Act of 1933, as amended) by such Purchaser, together
with all Common Shares deemed beneficially owned by the Holder's affiliates
(such term as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) and by any other Person whose ownership of such
securities would be aggregated for purposes of determining whether a "group"
exists under Section 13(d) of the Exchange Act would exceed 4.9% of the total
issued and outstanding shares of Common Stock, provided that the Holder shall
have the right to waive this restriction, in whole or in part, upon 61 days
prior notice to the Company. A transferee of such securities shall not be bound
by this provision unless it expressly agrees to be so bound.
7. INVESTMENT INTENT; LIMITED TRANSFERABILITY.
(a) The Holder represents, by accepting this Option, that it
understands that this Option and any securities obtainable upon exercise of
this Option or upon conversion of such securities have not been registered for
sale under Federal or state securities laws and are being offered and sold to
the Holder pursuant to one or more exemptions from the registration
requirements of such securities laws. In the absence of an effective
registration of such securities, any certificates for such securities shall
bear the legend set forth on the first page hereof. The Holder understands
that it must bear the economic risk of its investment in this Option and any
securities obtainable upon exercise of this Option or upon conversion of such
securities for an indefinite period of time, as this Option and such securities
have not been registered under Federal or state securities laws and therefore
cannot be sold unless subsequently registered under such laws, unless an
exemption from such registration is available.
(b) The Holder, by his acceptance of its Option, represents to
the Company that it is acquiring this Option and will acquire any securities
obtainable upon exercise of this Option for its own account for investment and
not with a view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act of 1933, as amended (the "Act"). The Holder
agrees that this Option and any such securities will not be sold or otherwise
transferred unless (i) a registration statement with respect to such transfer
is effective under the Act and any applicable state securities laws or (ii) the
Holder delivers to the Company an opinion of counsel reasonably satisfactory to
the Company that such registration statement is not required.
(c) In addition to the requirements set forth in Section 7(b)
above, this Option may not be sold, transferred, assigned or hypothecated for
six months from the date hereof except (i) to any firm or
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<PAGE> 10
corporation that succeeds to all or substantially all of the business of
Paramount Capital, Inc., (ii) to any of the officers, employees or affiliated
companies of Paramount Capital, Inc., or of any such successor firm, (iii) to
any NASD member participating in the Offering or any officer or employee of any
such NASD member or (iv) in the case of an individual, pursuant to such
individual's last will and testament or the laws of descent and distribution,
and is so transferable only upon the books of the Company which it shall cause
to be maintained for such purpose. The Company may treat the registered Holder
of this Option as he or it appears on the Company's books at any time as the
Holder for all purposes. The Company shall permit any Holder of an Option or
its duly authorized attorney, upon written request during ordinary business
hours, to inspect and copy or make extracts from its books showing the
registered holders of Options. All Options issued upon the transfer or
assignment of this Option will be dated the same date as this Option, and all
rights of the holder thereof shall be identical to those of the Holder.
8. LOSS, ETC., OF OPTION. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Option, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Option, if
mutilated, the Company shall execute and deliver to the Holder a new Option of
like date, tenor and denomination.
9. OPTION HOLDER NOT STOCKHOLDER. This Option does not
confer upon the Holder any right to vote or to consent to or receive notice as
a stockholder of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a stockholder, prior to the exercise hereof;
this Option does, however, require certain notices to Holders as set forth
herein.
10. COMMUNICATION. No notice or other communication under
this Option shall be effective unless, but any notice or other communication
shall be effective and shall be deemed to have been given if, the same is in
writing and is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at Neoprobe Corporation, 425 Metro Place
North, #300, Dublin, Ohio 43017-1367, Attn: President or such other
address as the Company has designated in writing to the Holder, or
(b) the Holder at c/o Paramount Capital Incorporated, 787
Seventh Avenue, 48th Floor, New York, NY 10019 or other such address as
the Holder has designated in writing to the Company.
11. HEADINGS. The headings of this Option have been inserted
as a matter of convenience and shall not affect the construction hereof.
12. APPLICABLE LAW. This Option shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to the principles of conflicts of law thereof.
13. AMENDMENT, WAIVER, ETC. Except as expressly provided
herein, neither this Option nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or
termination is sought; provided, however, that any provisions hereof may be
amended, waived, discharged or terminated upon the written consent of the
Company and the then current Majority of the Holders of the Options only.
10
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Option to be
signed by its President and attested by its Secretary this 16th day of
February, 1999.
NEOPROBE CORPORATION
By: /s/ David C. Bupp
------------------------------------------
Name: David C. Bupp
Title: President and Chief Executive Officer
ATTEST:
/s/ Patricia A. Coburn
- ----------------------------------------------
Patricia A. Coburn, Assistant Secretary
[Corporate Seal]
11
<PAGE> 12
SUBSCRIPTION
The undersigned, __________________________, pursuant to the provisions
of the foregoing Option, hereby agrees to subscribe for and purchase__________
Option Units of Neoprobe Corporation, each Option Unit consisting of one share
of the Preferred Stock, $.001 par value, and one Class _ Warrant covered by
said Option, and makes payment therefor in full at the price per share provided
by said Option. The undersigned hereby confirms the representations and
warranties made by it in the Option.
Dated: Signature:
---------------- -------------------------
Address:
---------------------------
CASHLESS EXERCISE
The undersigned _______________________, pursuant to the
provisions of the foregoing Option, hereby elects to exchange its Option for
__________ Option Units, each Option Unit consisting of one share of Preferred
Stock, $.001 par value, and one Class __ Warrant, pursuant to the cashless
exercise provisions of the Option. The undersigned hereby confirms the
representations and warranties made by it in the Option.
Dated: Signature:
---------------- -------------------------
Address:
---------------------------
ASSIGNMENT
FOR VALUE RECEIVED ______________________ hereby sells, assigns
and transfers unto ____________________________ the foregoing Option and all
rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Option on the books of
Neoprobe Corporation.
Dated: Signature:
---------------- -------------------------
Address:
---------------------------
12
<PAGE> 13
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby assigns and transfers
unto ____________________________ the right to purchase ________ Option Units
of Neoprobe Corporation, each Option Unit consisting of one share of Preferred
Stock, $.001 par value, and one Class __ Warrant covered by the foregoing
Option, and a proportionate part of said Option and the rights evidenced
thereby, and does irrevocably constitute and appoint ____________________,
attorney, to transfer that part of said Option on the books of Neoprobe
Corporation.
Dated: Signature:
---------------- -------------------------
Address:
---------------------------
13
<PAGE> 1
Exhibit 10.1.35
February 16, 1999
Neoprobe Corporation
425 Metro Place North, Suite 300
Dublin , Ohio 43017-1367
RE: FINANCIAL ADVISORY AGREEMENT
Dear Sirs:
1. This is to confirm our understanding that Paramount Capital, Inc.
("Paramount"), its affiliates and designees have been engaged as a non-
exclusive financial advisor of Neoprobe Corporation (the "Company") for a
period of twenty-four (24) months commencing on the date hereof (as extended
pursuant to Paragraph 12 hereto, or by mutual agreement of the parties hereto,
the "Term").
2. (a) The Company will pay Paramount a non-refundable retainer
fee for services provided by Paramount hereunder in an amount equal to one
hundred fifty thousand dollars ($150,000), minimum engagement of twenty-four
(24) months, payable in equal monthly installments; provided, however, that the
Company may prepay this amount in whole or in part at any time after the
execution of this Agreement, at its discretion.
(b) The Company will sell to the Paramount and/or its
designees, for $.001 per warrant, warrants (the "Advisory Options") to acquire
a number of newly issued Units equal to five percent (5%) of the number of
Units issued in the Offering, exercisable for a period of five (5) years at an
exercise price equal to $100,000, each "Unit" consisting of (a) one thousand
(1,000) shares of 5% Series B Preferred Stock ("Preferred Stock") and (b) Class
L Warrants (the "Warrants") to purchase 97,087 shares of common stock of the
Company, par value $.001 (the "Common Stock"). The Company agrees with
Paramount and its successors and assigns that the securities underlying the
Advisory Options will not be subject to redemption by the Company nor will they
be callable or subject to mandatory conversion by the Company. The Advisory
Options cannot be transferred, sold, assigned or hypothecated for six (6)
months except that they may be assigned in whole or in part during such period
to any NASD member or any officer or employee of Paramount Agent or any such
NASD member. The Advisory Options will contain a cashless exercise feature and
antidilution provisions and the right to have the Common Stock issuable upon
conversion of the Preferred Stock and upon exercise of the Warrants underlying
such Advisory Options included on the Company's next filed shelf registration
statement.
(c) The Company also agrees to pay in cash all out-of-pocket
expenses incurred by Paramount in providing its services hereunder, including
reasonable fees and disbursements of Paramount's counsel, such expenses to be
paid upon submission of a bill or bills by Paramount from time to time. If any
individual expense shall exceed $5,000, Paramount agrees to obtain prior
written authorization for such expense from the Company.
3. Upon the Closing of each Investment (as defined below) during the
Term or during the twelve-month period following the expiration or earlier
termination of the Term, the Company shall pay to Paramount a fee in an amount
equal to five percent (5%) of the aggregate value of such Investment and shall
issue to Paramount warrants to purchase an amount of securities equal to five
percent (5%) of the
1
<PAGE> 2
securities sold as part of such Investment at an exercise price equal to one-
hundred-ten percent (110%) of the price of such securities, exercisable until
five (5) years from the date of issuance of such warrants. For the purposes of
this Agreement, an Investment shall mean any original issuance of securities of
the Company which is made during the Term, other than the initial purchase of
the Company's Series B 5% Convertible Preferred Stock and Warrants to Purchase
Common Stock under the Preferred Stock and Warrant Purchase Agreement dated as
of February 16, 1999, or during the twelve-month period following the
expiration of the Term by an investor first introduced to the Company by or
through Paramount during or prior to the Term; provided, however, that no
compensation shall be due to Paramount pursuant to this paragraph 3 for an
Investment with respect to which Paramount is entitled to compensation pursuant
to an agreement which supersedes this paragraph 3 and provided further that if
the terms of both such superseding agreement and this Agreement would be
applicable to any particular investment, the terms of such superseding
agreement shall govern and Paramount shall be entitled to the compensation set
forth therein.
4. (a) Should the Company enter into an agreement with a party
first introduced to the Company by or through Paramount during or prior to the
Term pursuant to which the Company consummates a sale, merger, consolidation,
tender offer, business combination or similar transaction involving a majority
of the business assets or stock of the Company (a "Sale") during the Term, or
during the twelve-month period following the expiration of such Term, then the
Company shall pay Paramount: (i) a cash fee equal to six percent (6%) of the
aggregate cash consideration paid to the Company by the acquiror, such fee to
be payable in cash simultaneously with the closing of such Sale; and (ii) a
payment in the form of equity securities in an amount to be agreed upon between
the parties, but in no event shall the equity received be worth less than six
percent (6%) of any equity securities received by the Company (or the aggregate
amount of equity securities received by the Company's shareholders) as a result
of the Sale.
(b) Should the Company enter into an agreement with a party
first introduced to the Company by or through Paramount during or prior to the
Term pursuant to which the Company consummates a transaction wherein the
Company acquires all or substantially all of the business assets or stock of
another entity in which the Company is the surviving entity (an "Acquisition")
during the Term, or during the twelve-month period following the expiration of
such Term, then the Company shall pay Paramount: (i) a cash fee equal to six
percent (6%) of the aggregate cash consideration paid by the Company to the
entity acquired, such fee to be payable in cash simultaneously with the closing
of such Acquisition; and (ii) a payment in the form of equity securities of the
Company in an amount to be agreed upon between the parties, but in no event
shall the equity received be worth less than six percent (6%) of any equity
securities paid by the Company as a result of the Acquisition.
(c) For purposes of calculating Paramount's fee under this
Paragraph 4, the aggregate consideration paid with respect to the business,
assets or stock of the Company shall be equal to the total of all cash,
securities and/or other assets paid for such business, assets or stock by the
acquiror. Aggregate consideration shall also include: (i) any commercial bank
or similar indebtedness of the Company which is repaid or for which the
responsibility to pay is assumed by the acquiror in connection with such
transaction; (ii) the greater of the stated value or the liquidation value of
preferred stock of the Company which is assumed or acquired by the acquiror and
which is not converted into common stock upon the consummation of such
transaction; (iii) future payments for which the acquiror is obligated
absolutely ("Acquiror Future Payments"); and (iv) future payments for which the
acquiror is obligated upon the attainment of milestones or financial results
("Acquiror Contingent Payments"). The fee to be paid to Paramount as a result
of Acquiror Future Payments shall be paid upon the date of closing of such
Acquisition and shall be valued at the present value of the Acquiror Future
Payments. The fee to be paid to Paramount as a result of Acquiror Contingent
Payments shall be paid upon the receipt of such payments by the Company. In
the event that a Sale of the Company or an Acquisition by the Company is
consummated through a multiple-step transaction wherein the acquiror is not
obligated either absolutely or upon the attainment of milestones or financial
results to make future payments to further increase the acquiror's
2
<PAGE> 3
ownership in the Company (the "Multiple-Step Payments"), the Company agrees to
pay Paramount a fee on such Multiple-Step Payments which shall be calculated
pursuant to this Paragraph 4. Such fee shall be paid to Paramount upon receipt
by the Company of such Multiple-Step Payments and shall be in addition to the
fee paid to Paramount in the first step of such transaction.
5. Should the Company enter into an agreement with an investor first
introduced to the Company by or through Paramount during or prior to the Term
pursuant to which the Company consummates a Strategic Alliance(s) (as defined
below) during the term, or during the twelve-month period following the
expiration of such Term, then the Company shall pay Paramount: (a) a cash fee
equal to six percent (6%) of the present value of the Aggregate Consideration
(as defined below) to be received by the Company, its shareholders or employees
in each such transaction; and (b) a payment in the form of equity securities in
an amount to be agreed upon between the parties, but in no event less than six
percent (6%) of any equity securities received by the Company. Such fee shall
be paid to Paramount in cash simultaneously with the closing of each such
transaction. For the purpose of calculating Paramount's fee under this
Paragraph 5, Aggregate Consideration shall include, but not be limited to: (i)
all payments made at the closing of such transaction for equity securities,
equity security rights or similar rights; (ii) technology access fees or
similar up-front payments, (iii) other future payments, including without
limitation, licensing fees, lump sum payments, royalties and deferred
technology access fees, to be made to the Company or its employees for which
the Strategic Alliance partner(s) or other counter-parties (each a "Partner")
is obligated either absolutely ("Strategic Future Payments") or upon the
attainment of milestones or on a percentage or royalty basis ("Strategic
Contingent Payments"); (iv) funding provided, arranged or introduced by the
Partner (through reimbursement or otherwise) relative to research and
development, testing, clinical trials and related expenditures, whether such
work is performed, subcontracted or managed by the Company or the Partner; and
(v) the repayment or assumption by the Partner of obligations of the Company,
including indebtedness for money borrowed or amounts owed by the Company to
inventors or owners of technology. It is further understood that Aggregate
Consideration shall not be reduced by the amount of the fee due to Paramount
hereunder. Any portion of the Aggregate Consideration constituting Strategic
Future Payments shall be paid at closing and shall be valued at the present
value of the Strategic Future Payments. The fee to be paid to Paramount as a
result of Strategic Contingent Payments shall be paid upon the receipt of such
payments and shall be in addition to any fees paid at closing. A "Strategic
Alliance" may include, but is not limited to: (i) any joint venture,
partnership, license or other contract for the research, development,
manufacturing, marketing, distribution, sale or other activity relating to the
Company's present and/or future products or proposed products; (ii) the
purchase of, or commitment to purchase from the Company, less than a majority
of the business, assets or stock of the Company by one or more Partner(s);
(iii) the sale of any of the Company's assets or any rights in respect to its
products and/or technology; and (iv) a commitment to provide funding for all or
part of the Company's research and development activities, whether such work is
performed or managed by the Company or such Partner(s).
For purposes of calculating the present value of any Strategic Future
Payments, Strategic Contingent Payments, Acquiror Future Payments or Acquiror
Contingent Payments, the Company and Paramount agree to discount all such
payments by a discount factor equal to fifteen percent (15%) per annum, and,
where necessary, to use the projections which have been provided to prospective
Partners in the course of the transaction to quantify these Strategic Future
Payments, Strategic Contingent Payments, Acquiror Future Payments or Acquiror
Contingent Payments. For the purposes of calculating Paramount's fee,
securities constituting part of Aggregate Consideration which are traded on a
national or recognized foreign securities exchange or the Nasdaq National
Market System shall be valued at the last closing bid price thereof prior to
the date of the consummation or closing of any such transaction. Such
securities which are traded over-the-counter shall be valued at the mean
between the latest bid and asked prices prior to date of the consummation or
closing of any such transaction. Should the Company enter into a transaction
with a third party introduced to it by Paramount, Paramount shall be entitled
to compensation pursuant to either this paragraph 5 or paragraph 4, but not
both.
3
<PAGE> 4
6. Should Paramount introduce the Company to a potential product,
process, intellectual property or technology which is subsequently licensed or
otherwise acquired by the Company, the Company and Paramount shall negotiate in
good faith a fee for such introduction provided that in no event shall such fee
be less than: (a) two hundred thousand dollars ($200,000) in cash; and (b) an
equity payment in an amount to be agreed upon between the parties, but in no
event less than ten percent (10%) of the total outstanding shares on a fully
diluted basis of any subsidiary through which any such potential product,
process, intellectual property or technology may be owned or developed.
7. In the event that the Company, its directors or management
initiate any discussions with a third party in furtherance of any Sale,
Acquisition, Investment or Strategic Alliance or receive any meaningful inquiry
or are aware of the interest of any third party concerning a Sale, Acquisition,
Investment or Strategic Alliance which is the subject of this Agreement, they
shall promptly inform Paramount of the party and its interest.
8. Any financial advice rendered by Paramount pursuant to this
Agreement, as well as the existence of this Agreement, shall not be disclosed
publicly in any manner without Paramount's prior written approval and shall be
treated by the Company as confidential information; provided, however, that if
Paramount has refused to give prior written approval and the Company has
obtained a written opinion of independent counsel stating that such action is
necessary for the Company to comply with such action and that any course of
action not involving disclosure would likely result in a violation of law. The
Company shall provide Paramount with all financial and other information
requested by Paramount for the purposes of rendering its services pursuant to
this Agreement.
9. (a) The Company agrees not to divulge information which
Paramount discloses to it and which is marked as "Confidential" (the
"Confidential Information") to any third party or parties. The Company further
agrees to limit disclosure only to those of its officers, employees, agents,
affiliates and consultants as the Company considers necessary. The Company
shall use its best efforts to prevent the disclosure of the Confidential
Information as provided herein. This obligation shall be binding upon the
Company and shall continue for a period of five (5) years from the date of this
Agreement.
10. All non-public information given to Paramount by the Company
shall not be divulged by Paramount to any third parties and shall be treated by
Paramount as confidential information and shall not be used by Paramount except
in rendering its services pursuant to this Agreement. Paramount may rely,
without independent verification, on the accuracy and completeness of any
information furnished to Paramount by the Company, subject to its obligations
under the securities laws.
11. In the event that Paramount becomes involved in any capacity in
any action, proceeding, investigation or inquiry in connection with any matter
referred to in this Agreement or arising out of the matters contemplated by
this Agreement, the Company shall reimburse Paramount for its legal and other
expenses (including the cost of any investigation and preparation) as they are
incurred by Paramount in connection therewith. The Company also agrees to
indemnify each of Paramount, the directors, officers, employees and agents
thereof (the "Indemnitees"), pay on demand and protect, defend, save and hold
each Indemnitee harmless from and against any and all liabilities, damages,
losses, settlements, claims, actions, suits, penalties, fines, costs or
expenses (including, without limitation, attorneys' fees) (any of the
foregoing, a "Claim") incurred by or asserted against any Indemnitee of
whatever kind or nature, arising from, in connection with or occurring as a
result of this Agreement or the matters contemplated by this Agreement. The
foregoing agreement shall be in addition to any rights that any Indemnitee may
have at common law or otherwise. This indemnity shall not apply to the gross
negligence or willful misconduct of Paramount. This indemnity shall not apply
to Claims resulting from the intentional misconduct of Paramount.
4
<PAGE> 5
12. The Term of this Agreement shall be twenty-four (24) months
commencing on the date hereof. Thereafter, this Agreement shall continue on a
month to month basis until terminated by either party upon not less than thirty
(30) days notice with the monthly retainer fee payable on the first day of each
month (the "Extended Term"); provided, however, regardless of any termination,
the rights to compensation contained in Paragraphs 4 and 5 and to indemnity and
reimbursement contained in Paragraph 11 shall survive. In addition to any
retainer fees, Paramount shall be entitled to the reimbursement of reasonable
expenses incurred by Paramount as a result of services rendered prior to the
date of the termination.
13. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of
conflicts of law. The parties hereto irrevocably consent to the jurisdiction
of the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of or relating to
this Agreement, any document or instrument delivered pursuant to, in connection
with or simultaneously with this Agreement, or a breach of this Agreement or
any such document or instrument. In any such action or proceeding, each party
hereto waives personal service of any summons, complaint or other process and
agrees that service thereof may be made in accordance with this Section 13.
Within thirty (30) days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the party so served shall appear or answer such summons,
complaint or other process.
14. This Agreement shall be binding upon Paramount and the Company
and the successors and assigns of Paramount. The Company shall not assign or
sell all or substantially all of the Company's business and/or assets without
first requiring in writing that such assignee or successor is bound by the
provisions of this Agreement.
15. (a) Paramount shall not be in any way precluded from (i)
entering into similar agreements with companies which engage in similar
business activities or lines of business as the Company or developing or
marketing any products, services or technologies that do or may in the future
compete, directly or indirectly, with those of the Company, (ii) investing or
owning any interest publicly or privately in, or developing a business
relationship with, any corporation, partnership or other person or entity
engaged in the same or similar activities or lines or business as, or otherwise
in competition with, the Company or (iii) doing business with any client,
collaborator, licensor, consultant, vendor or customer of the Company.
Paramount and any of its officers, directors, employees or former employees and
affiliates shall not have any obligation, or be liable, to the Company solely
on account of the conduct described in the preceding sentence. The Company
recognizes that Paramount is not obligated to present any opportunities for an
Investment, Sale, Acquisition, Strategic Alliance or any other opportunities to
the Company and nothing in this Agreement shall be construed to limit
Paramount's ability to introduce Investment, Sale, Acquisition, Strategic
Alliance or any other opportunities to any other company. In the event that
Paramount and/or any officer, director, employee or former employee or
affiliate thereof acquires knowledge of a potential transaction, agreement,
arrangement or other matter which may be a corporate opportunity for both
Paramount and the Company, neither Paramount nor any of its officers,
directors, employees or former employees or affiliates shall have any duty to
communicate or offer such corporate opportunity to the Company and neither
Paramount nor any of its officers, directors, employees or former employees or
affiliates shall be liable to the Company for breach of any fiduciary or other
duty, as a stockholder or otherwise, solely by reason of the fact that
Paramount or any of its officers, directors, employees or former employees or
affiliates pursue or acquire such corporate opportunity for Paramount, direct
such corporate opportunity to another person or entity or communicate or fail
to communicate such corporate opportunity or entity to the Company.
(b) The provisions of this Section 15 shall be enforceable to
the fullest extent permitted by law.
5
<PAGE> 6
16. Paramount has not (a) made any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio or (b) conducted any seminar or meeting
whose attendees had been invited by any general advertising or general
solicitation in connection with the sale of the Company's Series B 5%
Convertible Preferred Stock and Warrants to Purchase Common Stock under the
Preferred Stock and Warrant Purchase Agreement dated as of February 16, 1999.
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to us the enclosed duplicate of this letter.
Sincerely yours,
PARAMOUNT CAPITAL, INC.
By: /s/ Lindsay A. Rosenwald
----------------------------------
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
Confirmed as of the date hereof:
NEOPROBE CORPORATION
By: /s/ David C. Bupp
-------------------------------------------------
Name: David C. Bupp
Title: President and Chief Executive Officer
6
<PAGE> 1
Exhibit 10.1.36
NEOPROBE CORPORATION
February 24, 1999
The Aries Master Fund
The Aries Domestic Fund, L.P.
c/o Paramount Capital Asset Management, Inc.
Attn: Michael S. Weiss
787 Seventh Avenue, 48th Floor
New York NY 10019
RE: PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (THE "AGREEMENT")
DATED AS OF FEBRUARY 16, 1999, AMONG NEOPROBE CORPORATION, A DELAWARE
CORPORATION, THE ARIES MASTER FUND, A CAYMAN ISLAND EXEMPTED COMPANY,
THE ARIES DOMESTIC FUND, L.P., AND THE CERTIFICATE OF DESIGNATIONS OF 5%
SERIES B CONVERTIBLE PREFERRED STOCK OF THE COMPANY (THE "CERTIFICATE").
Dear Sirs:
As we have discussed, the delay in completion of the first closing under
the Agreement has occasioned the necessity of adjusting the dates of certain
events which are to occur under the Agreement or the Certificate.
As we have agreed, the term "Outside Target Date" in the Agreement shall
mean March 31, 1999.
For the purposes of the Certificate, the "First Closing Date" shall be
Friday, February 26, 1999.
If the foregoing correctly reflects our agreement, please evidence your
acceptance of this agreement by signing and returning to me a copy of this
letter.
Very truly yours,
/s/ David C. Bupp
David C. Bupp
President
Chief Executive Officer
<PAGE> 2
The Aries Master Fund
The Aries Domestic Fund, L.P.
c/o Paramount Capital Asset Management, Inc.
Attn: Michael S. Weiss
February 24, 1999
Page Two
AGREED TO AND ACCEPTED AS OF THE DATE SET FORTH ABOVE.
THE ARIES MASTER FUND, A CAYMAN ISLAND EXEMPTED COMPANY
By: /s/ Lindsay A. Rosenwald
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
THE ARIES DOMESTIC FUND, L.P.
By: /s/ Lindsay A. Rosenwald
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
cc: Ira Kotel, Esq.
Roberts, Sheridan & Kotel
Robert S. Schwartz, Esq.
Benesch, Friedlander, Coplan & Aronoff, LLP
<PAGE> 1
Exhibit 10.1.37
NEOPROBE CORPORATION
March 12, 1999
The Aries Master Fund
The Aries Domestic Fund, L.P.
c/o Paramount Capital Asset Management, Inc.
Attn: Michael S. Weiss
787 Seventh Avenue, 48th Floor
New York NY 10019
RE: PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (THE "AGREEMENT")
DATED AS OF FEBRUARY 16, 1999, AMONG NEOPROBE CORPORATION, A DELAWARE
CORPORATION, THE ARIES MASTER FUND, A CAYMAN ISLAND EXEMPTED COMPANY,
THE ARIES DOMESTIC FUND, L.P.
Dear Sirs:
Section 7.6(b) of the Agreement currently requires Neoprobe, Inc. to set
aside and hold in a segregated, escrow account $1,500,000 in cash from the
proceeds of the sale of the Preferred Shares until the later of the receipt of
the Required Shareholder Approvals and the declaration of the effectiveness of
the Shelf Registration Statement. As we have discussed, you have agreed to
immediately release $500,000 of this amount and reduce the amount subject to
Section 7.6(b) of the Agreement to $1,000,000 even though the Required
Shareholder Approvals have not been received and the Shelf Registration
Statement has not been declared effective.
Capitalized terms not defined in this letter have the meanings assigned to
them in the Agreement.
If the foregoing correctly reflects our agreement, please evidence your
acceptance of this agreement by signing and returning to me a copy of this
letter.
Very truly yours,
/s/ David C. Bupp
David C. Bupp
President
Chief Executive Officer
<PAGE> 2
The Aries Master Fund
The Aries Domestic Fund, L.P.
c/o Paramount Capital Asset Management, Inc.
Attn: Michael S. Weiss
March 12, 1999
Page Two
AGREED TO AND ACCEPTED AS OF THE DATE SET FORTH ABOVE.
THE ARIES MASTER FUND, A CAYMAN ISLAND EXEMPTED COMPANY
By: /s/ Lindsay A. Rosenwald
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
THE ARIES DOMESTIC FUND, L.P.
By: /s/ Lindsay A. Rosenwald
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
cc: Ira Kotel, Esq.
Roberts, Sheridan & Kotel
Robert S. Schwartz, Esq.
Benesch, Friedlander, Coplan & Aronoff, LLP
<PAGE> 1
Exhibit 10.1.38
NEOPROBE CORPORATION
March 31, 1999
The Aries Master Fund
The Aries Domestic Fund, L.P.
c/o Paramount Capital Asset Management, Inc.
Attn: Michael S. Weiss
787 Seventh Avenue, 48th Floor
New York NY 10019
RE: PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (THE "AGREEMENT") DATED
AS OF FEBRUARY 16, 1999, AMONG NEOPROBE CORPORATION, A DELAWARE
CORPORATION, THE ARIES MASTER FUND, A CAYMAN ISLAND EXEMPTED COMPANY,
THE ARIES DOMESTIC FUND, L.P. (COLLECTIVELY THE ARIES MASTER FUND AND
THE ARIES DOMESTIC FUND, L.P. ARE REFERRED TO HEREIN AS "ARIES"), AND
THE CERTIFICATE OF DESIGNATIONS OF 5% SERIES B CONVERTIBLE PREFERRED
STOCK OF THE COMPANY (THE"CERTIFICATE").
Dear Sirs:
KPMG LLP audited Neoprobe Corporation's (the "Company's) financial
statements for fiscal year 1998. KPMG LLP did not complete their audit for
fiscal year 1998 by March 31, 1999 even though the Company fully cooperated with
them. Subsequently, KPMG informed the Company that KPMG's audit opinion will
contain a going concern qualification. These events have caused the Company to
be unable to comply with some of its obligations under the Agreement and
Certificate, including the following.
o The Company was unable to file by March 31, 1999 a Form S-3
("Form S-3") to register its common stock issuable in
connection with the Agreement.
o The Company was unable to file its Form 10-K for fiscal year
1998 and deliver an annual report of the Company, including
audited financial statements and an unqualified audit report,
within 90 days after year end.
o The Company will receive an audit opinion containing a going
concern qualification.
Because of these violations of the Agreement and the Certificate, Aries
has the right to redeem their shares of Series B Preferred Stock, to receive a
cash payments from the Company and to receive additional warrants (the
"Warrants") to purchase common stock, par value $.001, of the Company.
<PAGE> 2
The Aries Master Fund
The Aries Domestic Fund, L.P.
c/o Paramount Capital Asset Management, Inc.
Attn: Michael S. Weiss
March 31, 1999
Page Two
The Company and Aries agree:
o The Company will file a complete Form 10-K/A for the fiscal
year ended December 31, 1998 by April 15, 1999 and will file
the Form S-3 immediately thereafter.
o That the term "Outside Target Date" in the Agreement shall
mean April 15, 1999.
o That the deadline for the Company delivering to Aries an
annual report of the Company, including audited financial
statements and an audit report, is extended to April 15, 1999.
o That the Company receiving an audit opinion relating to fiscal
year 1998 which contains a going concern qualification will
not violate the terms of the Agreement or the Certificate.
o Aries waives its rights to redeem its shares of Series B
Preferred Stock, to receive cash payments from the Company and
to receive the Warrants for the period of time from March 31,
1999 until the date that Aries signs this waiver letter.
o This letter is a Certificate of Compliance with regard to the
issues discussed herein as required by Section 7.3 of the
Agreement.
o This letter is notification of material adverse changes as
required by Section 7.7 of the Agreement.
Except as expressly described above, this waiver letter shall not
constitute (a) a modification or alteration of the terms, conditions or
covenants of the Agreement or the Certificate or (b) a waiver, release or
limitation on Aries' exercise of any of its rights and remedies thereunder,
which are hereby expressly reserved. Except as described above, this waiver
letter shall not relieve or release the Company in any way from its duties,
obligations, covenants or agreements under the Agreement or Certificate or from
the consequences of any default thereunder. This waiver letter will not obligate
Aries, or be construed to obligate Aries, to waive any other defaults, whether
now existing or which may occur after the date on which Aries signs this waiver
letter.
If the foregoing correctly reflects our agreement, please evidence your
acceptance of this agreement by signing and returning to me a copy of this
waiver letter.
Very truly yours,
/s/ David C. Bupp
David C. Bupp
President
Chief Executive Officer
<PAGE> 3
The Aries Master Fund
The Aries Domestic Fund, L.P.
c/o Paramount Capital Asset Management, Inc.
Attn: Michael S. Weiss
April 1, 1999
Page Three
AGREED TO AND ACCEPTED AS OF THE DATE SET FORTH ABOVE.
THE ARIES MASTER FUND, A CAYMAN ISLAND EXEMPTED COMPANY
BY: /s/ Lindsay Rosenwald
-----------------------------------
NAME: Lindsay Rosenwald
---------------------------------
TITLE:
--------------------------------
THE ARIES DOMESTIC FUND, L.P.
BY: /s/ Lindsay Rosenwald
-----------------------------------
NAME: Lindsay Rosenwald
---------------------------------
TITLE:
--------------------------------
cc: Ira Kotel, Esq.
Roberts, Sheridan & Kotel
Robert S. Schwartz, Esq.
Benesch, Friedlander, Coplan & Aronoff LLP
<PAGE> 1
Exhibit 10.2.46
DAVID C. BUPP
5747 RUSHWOOD DRIVE
DUBLIN, OHIO 43017
February 16, 1999
Paramount Capital Asset Management, Inc.
Attn: Lindsay A. Rosenwald, M.D.
Chairman
787 Seventh Avenue
New York NY 10019
RE: PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (THE "PURCHASE
AGREEMENT) DATED AS OF FEBRUARY 16, 1999 BY AND AMONG NEOPROBE
CORPORATION, A DELAWARE CORPORATION (THE "COMPANY") AND THE
PURCHASERS LISTED ON EXHIBIT A TO THE PURCHASE AGREEMENT (THE
"PURCHASERS").
Dear Dr. Rosenwald:
Reference is made to the Employment Agreement dated as of January 1, 1998
between the Company and me (the "Employment Agreement"). In order to induce the
Purchasers to enter into the Purchase Agreement and to purchase the 5% Series B
Convertible Preferred Stock (the "Preferred Stock") issuable thereunder, which I
hereby acknowledge is a direct and material benefit to me, I hereby waive and
relinquish any claim that I am entitled to receive a severance payment under the
first sentence in paragraph H of Section 3 of the Employment Agreement solely by
reason of the issuance of the Preferred Stock or the warrants issued to the
Purchasers thereof, or to Paramount Capital, Inc. pursuant to the Purchase
Agreement (the "Warrants") or the conversion of the Preferred Stock into the
Company's Common Stock or the exercise of the Warrants to purchase Common Stock
or Preferred Stock by the persons who acquired the Preferred Stock and the
Warrants, pursuant to the Purchase Agreement.
Very truly yours,
/s/ David C. Bupp
David C. Bupp
<PAGE> 1
Exhibit 10.2.47
SCHEDULE IDENTIFYING OMITTED DOCUMENTS
The only particular in which the attached agreement differs from the
omitted agreements is the name of the employee who is a party to the agreements.
The following are the employees who are parties to the omitted agreements:
Brent L. Larson
Patricia A. Coburn
<PAGE> 2
SEVERANCE AGREEMENT
This Severance Agreement is made and entered into effective as of October
23, 1998 ("Effective Date"), by and between NEOPROBE CORPORATION, a Delaware
Corporation with a place of business at 425 Metro Place North, Suite 400,
Dublin, Ohio 43017-1367 (the "Company") and MATTHEW F. BOWMAN (the "Employee")
of 8123 Linden Leaf Circle, Worthington, Ohio 43235.
WHEREAS, the Company and the Employee wish to establish new terms,
covenants, and conditions for the Employee's continued employment with the
Company through this agreement ("Severance Agreement").
NOW, THEREFORE, in consideration of the mutual agreements herein set forth,
the parties hereto agree as follows:
1. DEFINITIONS. For the purposes of this Severance Agreement, the following
terms shall have the meanings given below:
"Base Salary" means an annual amount of base salary at the highest annual
rate (excluding bonuses and benefits but including withholding taxes) paid to
Employee at any time during the twenty-four (24) month period immediately before
the termination of the employment of the Employee.
A "Change in Control" of the Company has occurred when: (a) any Person,
other than Neoprobe or an employee benefit plan created by its Board of
Directors for the benefit of its employees, either directly or indirectly,
acquires beneficial ownership (determined under Rule 13d-3 of the Regulations
promulgated by the Securities and Exchange Commission under Section 13(d) of the
Exchange Act) of securities issued by Neoprobe having thirty percent (30%) or
more of the voting power of all the voting securities issued by Neoprobe in the
election of Directors at the next meeting of the holders of voting securities to
be held for such purpose; (b) a majority of the Directors elected at any meeting
of the holders of voting securities of Neoprobe are persons who were not
nominated for such election by the Board of Directors or a duly constituted
committee of the Board of Directors having authority in such matters; (c) the
stockholders of Neoprobe approve a merger or consolidation of Neoprobe with
another person, other than a merger or consolidation in which the holders of
Neoprobe's voting securities issued and outstanding immediately before such
merger or consolidation continue to hold voting securities in the surviving or
resulting corporation (in the same relative proportions to each other as existed
before such event) comprising eighty percent (80%) or more of the voting power
for all purposes of the surviving or resulting corporation; or (d) the
stockholders of Neoprobe approve a transfer of substantially all of the assets
of Neoprobe to another person other than a transfer to a transferee, eighty
percent (80%) or more of the voting power of which is owned or controlled by
Neoprobe or by the holders of Neoprobe's voting securities issued and
outstanding immediately before such transfer in the same relative proportions to
each other as existed before such event.
"Person" means any person within the meaning of Section 13(d) of the
Securities Exchange Act of 1934.
"Termination Without Cause" is a termination of employment that is not for
cause and not occasioned by the resignation, death or disability of the
Employee. Should the Company relocate to another city and Employee decide not to
relocate also, cessation of employment shall be without cause hereunder.
2. CHANGE IN CONTROL SEVERANCE. In addition to the rights of the Employee under
the Company's employee benefit plans or otherwise, if there is a Change in
Control and the employment of the Employee is concurrently terminated or is
terminated at any time within four (4) months thereafter (a) by the Company
1
<PAGE> 3
without cause, or (b) by the resignation of the Employee, for any reason, the
Employee shall be paid a severance payment equal to one and one-half (1.5) times
his Base Salary.
3. LIFE AND HEALTH BENEFITS. If the employment of the Employee is terminated and
she is entitled to a severance payment under Section 2 above, she shall be
entitled to continue to participate in the Company's life and health insurance
programs for a period of eighteen (18) months after such termination on the same
terms and conditions (including payments) as are then prevailing for the
Company's employees who have the same level of salary and tenure as the Employee
did when his employment was terminated. The Company shall not require any
payment from the Employee for life or health insurance in excess of the amounts
payable by the Company's employees who have the same level of salary and tenure
as the Employee, but the Employee understands and agrees that the Company has
the right to terminate the availability of such insurance for its then current
employees, in which event the Company shall not be required to provide such
insurance to the Employee. When the Company's obligation to provide insurance
under this Section 3 has terminated the Company shall provide the Employee with
such rights under COBRA as she may then be entitled without regard to the lapse
of time between the termination of his Employment and the date on which the
Company ceases to provide insurance under this Section 3.
4. VESTED BENEFITS. This Severance Agreement is in addition to and not in lieu
of any rights the Employee may otherwise have to receive any vested benefits
under any employee benefit plan or program or customary practice of the Company
at or after the termination of his employment with the Company. Regardless of
any amount payable to the Employee under this Severance Agreement, the Employee
shall be entitled to receive all benefits and payments that she may otherwise be
entitled to under any plan or program or customary practice of the Company all
of which shall be payable in accordance with the terms of such plan, program, or
practice.
5. ARBITRATION. Any dispute or controversy arising under or in connection with
this Severance Agreement shall be settled exclusively by arbitration in
Columbus, Ohio, in accordance with the nonunion employment arbitration rules of
the American Arbitration Association ("AAA") then in effect. If specific
nonunion employment dispute rules are not in effect, then AAA commercial
arbitration rules shall govern the dispute. If the amount claimed exceeds
$100,000, the arbitration shall be before a panel of three arbitrators. Judgment
may be entered on the arbitrator's award in any court having jurisdiction. The
Company shall indemnify the Employee against, and hold him harmless from, any
attorney's fees, court costs and other expenses incurred by the Employee in
connection with the preparation, commencement, prosecution, defense or
enforcement of any arbitration, award, confirmation or judgment in order to
assert or defend any right or obtain any payment under Section 2 above or under
this sentence; without regard to the success of the Employee or his attorney in
any such arbitration or proceeding.
6. GOVERNING LAW. The Severance Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
7. VALIDITY. The invalidity or unenforceability of any provision or provisions
of this Severance Agreement shall not affect the validity or enforceability of
any other provision of the Severance Agreement, which shall remain in full force
and effect.
8. ENTIRE AGREEMENT; NOT AN EMPLOYMENT AGREEMENT. This Severance Agreement
constitutes the entire understanding between the parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions, and
preliminary agreements. This Severance Agreement may not be amended except in
writing executed by the parties hereto. This Severance Agreement is not an
employment agreement and nothing contained herein gives Employee any right to
continue to be employed by or provide services to the Company or, except as
otherwise expressly set forth in Section 2 above, affects the right of the
Company to terminate Employee's employment or other relationship with Employee.
2
<PAGE> 4
9. EFFECT ON SUCCESSORS IN INTEREST. This Severance Agreement shall inure to the
benefit of and be binding upon heirs, administrators, executors, successors and
assigns of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Severance Agreement as of the date first written above.
NEOPROBE CORPORATION EMPLOYEE
By: /s/ David C. Bupp /s/ Matthew F. Bowman
------------------------------- ---------------------------------
David C. Bupp, President Matthew F. Bowman
3
<PAGE> 1
Exhibit 10.2.48
SCHEDULE IDENTIFYING OMITTED DOCUMENTS
The only particulars in which the attached agreement differs from the
omitted agreements is the name of the employee who is a party to the agreements
and the number of restricted shares subject to the agreements.
<TABLE>
<CAPTION>
Name Number of Restricted Shares
---- ---------------------------
<S> <C>
Brent L. Larson 20,000
Patricia A. Coburn 20,000
Lauren V. Vitek 20,000
</TABLE>
<PAGE> 2
NEOPROBE CORPORATION
SUITE 400
425 METRO PLACE NORTH
DUBLIN, OHIO 43017-1367
October 23, 1998
Matthew F. Bowman
8123 Linden Leaf Circle
Worthington, Ohio 43235
Congratulations. You have been granted a right to purchase Restricted Stock
under Neoprobe's 1996 Stock Incentive Plan (the "Plan") on the following terms:
1. PURCHASE AND SALE. On the terms and subject to the conditions set forth
in this Agreement, you hereby subscribe for and agree to purchase 40,000 shares
of Common Stock (the "Restricted Stock") for and in consideration of a payment
by you to Neoprobe of $0.001 per share.
2. TRANSFER RESTRICTIONS. The fair market value of Common Stock is
demonstrated by the closing price on the Nasdaq National Market of such
securities on the business day before the date first set forth above which was
$0.53 per share. In consideration of the difference between the purchase price
of the Restricted Stock set forth in paragraph 1 above and its fair market value
without the restrictions and risk of forfeiture set forth herein, you agree
that, unless and until any of the Restricted Stock vests and becomes
transferable as provided in paragraph 4 below, you will neither transfer, sell,
assign nor pledge any of the Restricted Stock. Any certificate representing any
Restricted Stock issued hereunder shall bear the following legend in larger or
other contrasting type or color: "The transfer of these securities is restricted
by, and such securities are subject to a risk of forfeiture, under a Restricted
Stock Purchase Agreement between the registered owner hereof and the Issuer
dated October 23, 1998."
3. FORFEITURE. You will forfeit any portion of the Restricted Stock
purchased under this Agreement that has not vested and become transferable on
the earliest of: (a) the expiration of 10 years from the date of this Agreement,
or (b) (except as otherwise provided in the last sentence of this paragraph 3)
immediately upon the termination of your employment by your Employer under the
Employment Agreement, whether for cause or without cause or because of your
death or disability or by your resignation. If such a forfeiture occurs, all of
your right, title and interest in and to any shares of Restricted Stock which
have not previously vested and became transferable will be terminated, the
certificates representing the forfeited shares will be canceled or transferred
free and clear of all restrictions to Neoprobe's treasury and we will pay you
$0.001 per share for each share of Restricted Stock so forfeited.
Notwithstanding clause (b) of this paragraph 3 no forfeiture shall occur upon
the termination of your employment by your Employer under the Employment
Agreement without cause or because of your death or disability if at the time of
such termination Neoprobe is engaged in active negotiations that could
reasonably be expected to result in a change in control.
4. VESTING PROVISIONS. Any Restricted Stock that has not previously been
forfeited under Section 3 above will vest and become transferable if and when a
Change in Control (as defined below in Section 5) of the Company occurs or upon
the termination of your employment by your Employer under the Employment
Agreement without cause or because of your death or disability if at the time of
such termination Neoprobe is engaged in active negotiations that could
reasonably be expected to result in a Change in Control; provided the Committee
certifies such occurrence in its minutes or another writing promptly thereafter.
Notwithstanding any provision of this Agreement or any provision of the Plan,
including, but not limited to,
1
<PAGE> 3
the last sentence of Section 7.1 thereof and Section 8.3 thereof, the provisions
of which are hereby waived by you, the Committee may, if it determines in its
sole discretion that your actions in connection with any Change in Control which
results in the vesting of any shares of Restricted Stock hereunder were not in
accordance with your duties to the Company and its stockholders as a director,
officer or employee of the Company or your actions did not fully support the
determinations of the Board of Directors of the Company in connection therewith,
reduce the number of shares of Restricted Stock which vest under this Agreement
or eliminate such vesting entirely. When any portion of the Restricted Stock
vests and becomes transferable, the Company shall, subject to the provision of
Section 6 below, promptly deliver a certificate (free of all adverse claims and
transfer) representing the number of shares constituting the vested and
transferable portion of the Restricted Stock to you at your address given above
and such shares shall no longer be deemed to be Restricted Stock subject to the
terms and conditions of this Agreement.
5. CHANGE IN CONTROL. For the purpose of this Agreement, a Change in
Control of the Company has occurred when: (a) any person (defined for the
purposes of this Section 3 to mean any person within the meaning of Section
13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than
Neoprobe or an employee benefit plan created by its Board of Directors for the
benefit of its employees, either directly or indirectly, acquires beneficial
ownership (determined under Rule 13d-3 of the Regulations promulgated by the
Securities and Exchange Commission under Section 13(d) of the Exchange Act) of
securities issued by Neoprobe having thirty percent (30%) or more of the voting
power of all the voting securities issued by Neoprobe in the election of
Directors at the next meeting of the holders of voting securities to be held for
such purpose; (b) a majority of the Directors elected at any meeting of the
holders of voting securities of Neoprobe are persons who were not nominated for
such election by the Board of Directors or a duly constituted committee of the
Board of Directors having authority in such matters; (c) the stockholders of
Neoprobe approve a merger or consolidation of Neoprobe with another person,
other than a merger or consolidation in which the holders of Neoprobe's voting
securities issued and outstanding immediately before such merger or
consolidation continue to hold voting securities in the surviving or resulting
corporation (in the same relative proportions to each other as existed before
such event) comprising eighty percent (80%) or more of the voting power for all
purposes of the surviving or resulting corporation; or (d) the stockholders of
Neoprobe approve a transfer of substantially all of the assets of Neoprobe to
another person other than a transfer to a transferee, eighty percent (80%) or
more of the voting power of which is owned or controlled by Neoprobe or by the
holders of Neoprobe's voting securities issued and outstanding immediately
before such transfer in the same relative proportions to each other as existed
before such event.
6. RIGHTS; STOCK DIVIDENDS. Except for the restrictions on transfer set
forth in Section 2 and the possibility of forfeiture set forth in Section 3,
upon the issuance of a certificate representing shares of Restricted Stock, you
will have all other rights in such shares, including the right to vote such
shares and receive dividends other than dividends on or distributions of shares
of any class of stock issued by the Company which dividends or distributions
shall be delivered to the Company under the same restrictions on transfer and
possibility of forfeitures as the shares of Restricted Stock from which they
derive.
7. TAXATION. Both you and we intend that the transactions provided for in
this Agreement will be governed by the provisions of Section 83(a) of the
Internal Revenue Code of 1986. You will have taxable income upon the vesting of
Restricted Stock. At that time, you must pay to the Company an amount equal to
the required federal, state, and local tax withholding less any withholding
otherwise made from your salary or bonus. You must satisfy any relevant
withholding requirements before the Company issues certificates representing
vested shares of Restricted Stock to you.
8. EMPLOYMENT AGREEMENT. This Agreement is not an employment agreement and
nothing contained herein gives you any right to continue to be employed by or
provide services to the Company or affects the right of the Company to terminate
your employment or other relationship with you.
2
<PAGE> 4
9. PLAN CONTROLS. This Agreement is a Restricted Stock Purchase Agreement
(as such term is defined in the Plan) under Article 7 of the Plan. The terms of
this Agreement are subject to, and controlled by, the terms of the Plan, as it
is now in effect or may be amended from time to time hereafter, which are
incorporated herein as if they were set forth in full. Except as otherwise
expressly set forth herein, any words or phrases defined in the Plan have the
same meanings in this Agreement. The Company will provide you with a copy of the
Plan promptly upon your written or oral request made to its principal financial
officer.
10. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Columbus,
Ohio, in accordance with the nonunion employment arbitration rules of the
American Arbitration Association ("AAA") then in effect. If specific nonunion
employment dispute rules are not in effect, then AAA commercial arbitration
rules shall govern the dispute. If the amount claimed exceeds $100,000, the
arbitration shall be before a panel of three arbitrators. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. The Company
will indemnify you against, and hold you harmless from, any attorney's fees,
court costs and other expenses incurred by you in connection with the
preparation, commencement, prosecution, defense or enforcement of any
arbitration, award, confirmation or judgment in order to assert or defend any
right or obtain any payment hereunder after the occurrence of a Change in
Control of the Company or under this sentence; without regard to the success of
you or your attorney in any such arbitration or proceeding.
11. MISCELLANEOUS. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This Agreement
may not be amended or terminated except by a writing signed by the party against
whom any such amendment or termination is sought. If any one or more provisions
of this Agreement shall be found to be illegal or unenforceable in any respect,
the validity and enforceability of the remaining provisions hereof shall not in
any way be affected or impaired thereby. This Agreement shall be governed by the
laws of the State of Delaware.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
NEOPROBE CORPORATION
By: /s/ David C. Bupp
-----------------------------
David C. Bupp, President
Accepted and Agreed to as of
the date first set forth above:
/s/ Matthew F. Bowman
- -----------------------------------
Matthew F. Bowman
3
<PAGE> 1
Exhibit 10.2.49
SEPARATION AGREEMENT
OCTOBER 21, 1998
NEOPROBE CORPORATION, a Delaware corporation with its principal place of
business at 425 Metro Place North, Suite 300, Dublin, Ohio 43017-1367 (the
"Company"), and
JOHN L. RIDIHALGH, who resides at 2112 Iuka Avenue, Columbus, Ohio 43201 (the
"Executive")
hereby agree as follows:
PREAMBLE:
1. Executive has been employed by the Company as its Chairman of the Board and
at various times as its Chief Executive and Chief Scientific Officer under an
Employment Agreement between it and the Executive effective as of January 1,
1996 ("Employment Agreement").
2. The term of the Employment Agreement will expire on December 31, 1998 and the
Board of Directors of the Company has determined that the term will not be
extended.
3. The Company has offered to make a substantial separation payment to the
Executive on the terms set forth below in exchange for his resignation from all
offices with the Company, the execution and delivery of a general release and
certain other promises set forth below.
TERMS:
1. In consideration of the promises made by Company as set forth below:
(a) Executive hereby agrees to resign as a director, officer and
employee of the Company effective as of the close of business
on December 31, 1998 and to execute and deliver to the Company
his resignation in the form of Exhibit A hereto on that day;
(b) Executive hereby agrees to execute and deliver to the Company,
on December 31, 1998, his general release in the form of
Exhibit B hereto;
(c) On or before December 31, 1998, Executive shall return to the
Company, (i) all of its documents, and other tangible items in
written, magnetic or other form, which contain confidential
information concerning the Company, and any copies thereof ,
that are in his possession or under his control and; and (ii)
all other Company property within his possession or under his
control, including, but not limited to, office keys,
identification badges, credit cards and computer equipment and
software;
(d) Executive acknowledges and confirms that the Proprietary
Information Agreement between the Company and him, which
affirmed his obligation not to disclose the
1
<PAGE> 2
Company's trade secrets, confidential or proprietary
information, is in full force and effect and will remain in
full force and effect after termination of his employment;
(e) Executive shall not disparage the Company, its affiliates or
their respective businesses, business methods, technologies,
directors, officers, employees or agents, and Executive shall
not cause, instigate, solicit nor encourage any third party,
to file, maintain or prosecute any action or claim of any type
against Company, its affiliates or its officers or agents; and
(f) Executive agrees that if a subpoena or other legal document is
served upon him requiring production or disclosure of
information or documents concerning the Company or any of its
employees or property, he shall promptly notify the Company's
General Counsel and provide her with copies of any subpoena or
other legal document. Executive shall thereafter make such
documents available to the Company for inspection and copying
at a reasonable time and place designated by the Company prior
to their production under the subpoena. If the subpoena or
other legal process requires Executive to testify or make
written or oral statements, Executive agrees to meet,
telephonically or in person, with attorneys designated by
Company, at a reasonably convenient time and place designated
by Company prior to the testimony, for the purpose of
discussing such testimony; Nothing herein shall give Company
the right to control or dictate the content of any testimony,
or any documents produced pursuant to subpoena or other lawful
process; Executive shall provide all information lawfully
required of him; If the Company requires any information or
testimony from Executive in connection with any claim made
against Company, or any claims made by Company against persons
or entities not a party to this Agreement, Executive agrees to
cooperate fully with Company, including: (i) appearing at any
trial, hearing, deposition or arbitration; (ii) meeting
telephonically or in person with attorneys designated by
Company, at a reasonably convenient time and place designated
by Company and prior to the testimony, for the purpose of
discussing such testimony and any other matters relating to
the claim; and (iii) providing Company with any documentation
in his custody or under his control; The Company agrees to pay
Executive for any reasonable travel, telephone, photocopy and
other out-of-pocket expenses incurred as a result of any
requests made by Company under this Paragraph (f); The
provisions of this Paragraph (f) shall not apply to any legal
action brought under this Agreement.
2. In consideration of the promises made by Executive as set forth above:
(a) Company shall pay Executive a total amount of $137,750 as a
separation payment, in 12 equal semi-monthly installments of
$11,479.17, in accordance with its normal payroll practices,
commencing with its first payroll period in January, 1999 and
ending with its last payroll period in June 1999 and subject
to all applicable federal, state and local tax, FICA and other
payroll deductions;
(b) Company shall not oppose a claim for Ohio unemployment
compensation filed by Executive, but shall report in response
to OBES inquiry any amounts paid under this Agreement;
(c) The Company hereby confirms that the Employment Agreement
between it and the Executive is in full force and effect on
the date hereof and will remain in full force and effect until
December 31, 1998 when it will expire by its own terms;
provided, however, that the Company hereby relieves the
Executive from the duty under Section 1 thereof to devote
substantially all of his working time to the position he holds
with the Company and
2
<PAGE> 3
agrees that he need not report to the Company's offices on a
regular basis during the remainder of 1998; the Company hereby
agrees that it will not terminate the employment of the
Executive under the Employment Agreement without cause before
the end of its term;
(d) On the Company's first pay day in 1999, the Company shall pay
Executive all accrued but unused vacation pay owed to him as
of December 31, 1998, in a lump sum; the Company will not
charge any vacation time against the Executive after the date
hereof and he shall continue to accrue vacation time at the
applicable rate under the Employment Agreement from the date
hereof through December 31, 1998;
(e) Executive's coverage under the Company's health, disability,
travel and life insurance plans will terminate at the close of
business on December 31, 1998; After December 31, 1998,
Executive shall be able to purchase health insurance benefits
from the Company on a COBRA basis, but shall be solely
responsible for the cost thereof; Executive may have the right
to convert other coverages to his own individual plan, if
provided for under, and in accordance with, the terms of, such
plans;
(f) The Company will use its best efforts to assign to the
Executive any life insurance policy on the life of the
Executive on or before December 31, 1998, without recourse to
or warranty by the Company and the Executive shall accept such
assignments and shall be solely responsible for any payments
of premium on such policies, including any past due premiums;
and
(g) Executive was granted stock options under the Company's Stock
Option Plan; Company hereby agrees that all options which are
vested and exercisable as of the date hereof shall continue to
be vested and exercisable, subject to the express terms
thereof.
3. It is understood and agreed by all parties that this Agreement is a
settlement of doubtful and disputed claims and it or the fact of
settlement does not constitute an admission of liability or wrongdoing
on the part of Company, under any state or federal statute, common law
or regulation. It purely represents an offer of compromise.
4. The parties hereto agree that this Agreement is privileged, and, except
to the extent necessary to enforce this Agreement, neither party may
use any part of this Agreement as evidence, nor request that any part
be admitted into evidence, in any proceeding of any character, judicial
or otherwise, now pending or otherwise instituted.
5. All parties intend that this Agreement will be legally binding upon
themselves, their relatives or affiliates (by blood or legal
relationship), estates, heirs, personal representatives and assigns.
6. The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this
instrument shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
7. Both parties agree that such parties shall hold all events,
transactions and occurrences involving the other party and the terms,
provisions and conditions of this Agreement as strictly confidential
information, which shall not be reported, divulged, publicized or in
any way revealed to any person, corporation, agency or entity not a
party to this agreement, except attorneys and immediate family or
otherwise as required by law or the regulations of the Securities and
Exchange Commission and for purposes of reporting taxes or filing for
unemployment compensation. The parties shall prepare
3
<PAGE> 4
a mutually acceptable joint press release regarding Executive's
employment and his resignation, which press release shall be utilized
for public dissemination. Company may file a copy of this Agreement
with the Securities and Exchange Commission and make disclosures
concerning this Agreement as required by its regulations.
8. Executive understands that Section 1 above requires delivery of a
General Release that includes a release of claims under the Age
Discrimination in Employment Act and the Older Workers Benefit
Protection Act. He understands that neither this Agreement nor the
General Release will waive rights or claims that arise after the date
of the execution of the General Release . Further, Executive
acknowledges he has been advised by the Company that he may consult
with legal counsel regarding this Agreement and the General Release.
9. Executive acknowledges he may have at least twenty-one (21) days to
review and consider this Agreement if he desires; and, as a result,
enters into this Agreement willingly and voluntarily. To the extent
that Executive has taken less than twenty-one (21) days to consider
this Agreement, Executive acknowledges that he has had sufficient time
to consider this Agreement and to consult with counsel and that he does
not desire additional time.
10. Executive is aware that he has seven (7) days beyond that date of the
General Release (December 31, 1998) during which he may revoke the
General Release by giving the Company written notice. Such notice
should be delivered to Patricia Coburn, Vice President and General
Counsel, at Neoprobe Corporation 425 Metro Place North, Suite 300,
Dublin, Ohio 43017-1367. Upon such notification by Executive, this
Agreement and the General Release will become null and void and shall
have no force or effect as to either party and, Executive will forfeit
all money and other benefits of this Agreement and the General Release.
11. Executive further agree that any breach or threatened breach by
Executive of this Agreement cannot be remedied solely by the recovery
of damages and Neoprobe shall therefore be entitled to an injunction
against such breach or threatened breach without posting any bond or
other security. Nothing herein, however, shall be construed as
prohibiting Neoprobe from pursuing, in law or equity, any remedy for
such breach or threatened breach, including the recovery of damages.
12. All parties affirm that the only consideration for signing this
Agreement are the terms stated herein, that no other promises or
agreement of any kind have been made to or with any of the parties or
any other person or entity whatsoever, and that they fully understand
the meaning and intent of this instrument. This Agreement and the
exhibits hereto and the agreements and instruments required to be
executed and delivered hereunder set forth the entire agreement of the
parties with respect to the subject matter hereof and supersede and
discharge all prior agreements (written or oral) and negotiations and
all contemporaneous oral agreements concerning such subject matter and
negotiations. There are no oral conditions precedent to the
effectiveness of this Agreement.
13. This Agreement shall be governed by the laws of the State of Ohio and
any disputes shall adjudicated within the exclusive jurisdiction and
venue of the courts of the State of Ohio and the United States seated
in Franklin County, Ohio. If any provision of this Agreement including,
but not limited to, the waiver of claims under any particular statute,
should be deemed unenforceable, the remaining provisions shall, to the
extent possible, be carried into effect, taking into account the
general purpose and spirit of this Agreement.
4
<PAGE> 5
SIGNATURES:
EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ AND FULLY UNDERSTANDS ALL THE
PROVISIONS OF THIS AGREEMENT AND THE GENERAL RELEASE ATTACHED HERETO, AND HE IS
ENTERING INTO THIS AGREEMENT VOLUNTARILY. EXECUTIVE ACKNOWLEDGES THAT THE
PAYMENT HE IS RECEIVING IN EXCHANGE FOR EXECUTING THIS AGREEMENT IS GREATER THAN
THAT WHICH HE WOULD BE ENTITLED TO IN THE ABSENCE OF THIS AGREEMENT. EXECUTIVE
HAS NOT RELIED UPON ANY REPRESENTATION OR STATEMENT, WRITTEN OR ORAL, NOT SET
FORTH IN THIS AGREEMENT.
EXECUTIVE
/s/ John L. Ridihalgh
----------------------------
John L. Ridihalgh
NEOPROBE CORPORATION
By: /s/ David C. Bupp
-------------------------
David C. Bupp, President
5
<PAGE> 6
JOHN L. RIDIHALGH
2112 IUKA AVENUE
COLUMBUS, OHIO 43201
December 31, 1998
Neoprobe Corporation
425 Metro Place North
Suite 300
Dublin, Ohio 43017-1367
Dear Sirs:
I hereby resign as a director, officer and employee of Neoprobe Corporation
effective as of the close of business today, December 31, 1998.
Very truly yours,
/s/ John L. Ridihalgh
John L. Ridihalgh
<PAGE> 7
GENERAL RELEASE
The undersigned, John L. Ridihalgh, who resides at 2112 Iuka Avenue, Columbus,
Ohio 43201 ("Mr. Ridihalgh") does hereby release
Neoprobe Corporation, a Delaware corporation with its principal place of
business at 425 Metro Place North, Suite 400, Dublin, Ohio 43017-1367, its
parent, subsidiary and affiliated entities and their respective directors,
officers, employees, attorneys and agents and all of the successors, assigns and
personal representatives of such persons (the "Neoprobe Parties"),
From any and all claims, causes of action and rights that Mr. Ridihalgh has or
may have against any of the Neoprobe Parties, individually, jointly or in any
representative or fiduciary capacity, whether or not Mr. Ridihalgh knows of
them, and discharges the Neoprobe Parties, individually and jointly and in any
representative or fiduciary capacity, from any further obligation or liability
to Mr. Ridihalgh, including but not limited to, any claims which arose out of
the employment relationship between Mr. Ridihalgh and Neoprobe Corporation or
its termination;
For and in consideration of the amounts payable to Mr. Ridihalgh under the
Separation Agreement dated October 21, 1998, between Neoprobe Corporation and
Mr. Ridihalgh (the "Separation Agreement"), the receipt and sufficiency of which
are hereby acknowledged.
This General Release specifically discharges any claims or charges of
discrimination, including age discrimination, that Mr. Ridihalgh has or may have
against the Neoprobe Parties under any federal, state or local statute, law,
rule or regulation, including, but not limited to, any claim or cause of action
asserted or which could be asserted under any of the following laws as they now
exist or may be amended in the future:
Ohio Revised Code Chapter 4112 concerning discrimination;
Ohio's Workers' Compensation Law;
Ohio Whistleblowers Protection Act;
Title VII of the 1964 Civil Rights Act;
The 1866 Civil Rights Act;
The Civil Rights Act of 1991;
The Age Discrimination in Employment Act;
The Older Workers Benefit Protection Act;
The Americans with Disabilities Act;
The Fair Labor Standards Act of 1938;
The Equal Pay Act;
The Family and Medical Leave Act of 1993;
The Occupational Safety and Health Act of 1970;
The Employee Retirement Income Security Act of 1974;
The Consolidated Omnibus Budget Reconciliation Act of 1986;
Common law claims for wrongful discharge, unjust dismissal, or
constructive discharge;
Common law claims for breach of any oral or written employment
contract; and
Common law Claims for libel, slander or defamation.
This General Release, is not intended to and, does not release any right held by
Mr. Ridihalgh, or discharge any obligation of any of the Neoprobe Parties: under
any check payable to Mr. Ridihalgh's order which was properly issued within the
last 6 months; for compensation for current periods; to indemnify or defend Mr.
Ridihalgh under the charter or by-laws of Neoprobe Corporation or any of its
parent, subsidiary or affiliated entities or under any policy of liability or
errors and omissions insurance; that is a vested benefit under any
1
<PAGE> 8
employee benefit plan; under any stock option or restricted stock purchase
agreement that is vested and exercisable, subject to the express terms thereof;
or under the Separation Agreement.
Mr. Ridihalgh hereby covenants and agrees with each of the Neoprobe Parties that
he will not, directly or indirectly, commence or maintain any action, suit or
proceeding concerning any matter as to which he has granted a release herein.
Mr. Ridihalgh represents and warrants to each of the Neoprobe Parties that he
has duly executed and delivered this General Release, which constitutes his
valid and legally binding obligation and is enforceable against him in
accordance with the terms hereof and that he has not assigned, transferred,
conveyed or encumbered any claim, cause of action or right that he has or may
have against any of the Neoprobe Parties.
Mr. Ridihalgh intends this General Release to be legally binding upon himself,
his family, heirs, attorneys and agents, and his and their successors, assigns
and personal representatives.
Mr. Ridihalgh understands that this General Release includes a release of claims
under the Age Discrimination in Employment Act and the Older Workers Benefit
Protection Act. He understands that this General Release does not waive rights
or claims that arise after the date of its execution shown below. Further, Mr.
Ridihalgh acknowledges he was advised by the Company that he may consult with
legal counsel regarding the Separation Agreement and this General Release.
Mr. Ridihalgh acknowledges he has had at least twenty-one (21) days to review
and consider this General Release; and, as a result, enters into this General
Release willingly and voluntarily. To the extent that he has taken less than
twenty-one (21) days to consider this General Release, he acknowledges that he
has had sufficient time to consider this General Release and to consult with
counsel and that he does not desire additional time.
Mr. Ridihalgh is aware as of that he has seven (7) days beyond the date of
execution of this General Release shown below during which he may revoke the
General Release by giving the Company written notice. Such notice should be
delivered to Patricia Coburn, Vice President and General Counsel, at Neoprobe
Corporation 425 Metro Place North, Suite 300, Dublin, Ohio 43017-1367. Upon such
notification by Mr. Ridihalgh, this General Release and the Separation Agreement
will become null and void and shall have no force or effect as to any party,
and, Mr. Ridihalgh will forfeit all money and other benefits of this General
Release and the Separation Agreement.
This General Release may not be changed or terminated orally, but may only be
changed or terminated by and instrument in writing signed by the party against
whom the enforcement of such change or termination is sought.
The validity, performance and enforcement of this General Release are governed
by the law of the State of Ohio.
IN WITNESS WHEREOF, Mr. Ridihalgh has executed and delivered this General
Release on this 31st day of December, 1998.
2
<PAGE> 9
BY SIGNING THIS GENERAL RELEASE, YOU LOSE RIGHTS YOU MAY HAVE TO BRING A LAWSUIT
OR RECEIVE A RECOVERY ON ANY CLAIM AGAINST NEOPROBE CORPORATION ITS ASSOCIATES
BASED ON ANY ACTIONS, FAILURES TO ACT, STATEMENTS, OR EVENTS THAT OCCURRED
BEFORE THE DATE OF THIS GENERAL RELEASE, INCLUDING CLAIMS CONCERNING YOUR
EMPLOYMENT WITH NEOPROBE OR ITS TERMINATION.
YOU ACKNOWLEDGE THAT THE PAYMENT YOU ARE RECEIVING IN EXCHANGE FOR EXECUTING
THIS GENERAL RELEASE IS GREATER THAN THAT WHICH YOU WOULD BE ENTITLED TO IN THE
ABSENCE OF THIS GENERAL RELEASE.
/s/ John L. Ridihalgh
----------------------------
John L. Ridihalgh
3
<PAGE> 1
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
EXHIBIT 10.4.32
NEOPROBE CORPORATION
&
EV PRODUCTS
SUPPLY AGREEMENT
DECEMBER 1997
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 2
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
ARTICLE. DEFINITIONS.........................................................1
1.01 Affiliate.........................................................1
1.02 Calendar Year.....................................................1
1.03 Certificate of Release (or Certificate of Compliance).............1
1.04 Crystal...........................................................2
1.05 Effective Date....................................................2
1.06 FDA and Act.......................................................2
1.07 Crystals and/or Modules...........................................2
1.08 Person............................................................2
1.09 Quality Assurance Standards.......................................2
1.10 Schedules.........................................................2
2.01 Supply of Product.................................................2
2.02 Price of Crystals and/or Modules..................................3
2.03 Working Forecast..................................................3
2.04 Long-Term Business Forecast.......................................3
2.05 Placement of an Order.............................................3
2.06 eV's Obligation to Meet Requirements..............................3
2.07 Neoprobe's Obligation to Meet Requirements........................3
2.08 Exclusivity.......................................................3
2.09 Shipment of and Payment for Crystals and/or Modules...............4
ARTICLE III. TOOLING.........................................................4
3.01 Ownership of Tooling..............................................4
3.02 Tooling Maintenance...............................................4
3.03 Tooling Removal...................................................4
ARTICLE IV. TERM AND TERMINATION.............................................5
4.01 Term..............................................................5
4.02 Termination for Material Breach...................................5
4.03 Termination for Insolvency........................................5
4.04 Rights or Obligations Upon Termination............................5
4.05 Confidentiality Upon Termination..................................5
ARTICLE V. REGULATORY.......................................................5
5.01 Access to eV's Facilities.........................................5
5.02 Regulatory Support................................................6
5.03 Manufacturing Facility............................................6
ARTICLE VI. REPRESENTATIONS & WARRANTIES.....................................6
6.01 Product Warranty..................................................6
ARTICLE VII. INDEMNIFICATION.................................................6
7.01 eV Indemnity......................................................6
7.02 Neoprobe Indemnity................................................6
7.03 Notice of Defense of Actions......................................7
</TABLE>
(i)
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 3
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VIII. CONFIDENTIALITY................................................7
8.01 Confidential Information..........................................7
8.02 Limitations on Confidentiality....................................7
8.03 Disclosure Required by Law........................................8
8.04 Equitable Remedies for Breach of Confidentiality..................8
ARTICLE IX. PROTECTION OF SUPPLY.............................................8
9.01 Disaster Recovery.................................................8
9.02 Placement of Ingot Order .........................................8
9.03 Close of eV's Business............................................9
ARTICLE X. MISCELLANEOUS.....................................................9
10.01 Force Majeure........................................................9
10.02 Relationship.........................................................9
10.03 Governing Law ......................................................10
10.04 Notice..............................................................10
10.05 Legal Construction..................................................11
10.06 Entire Agreement, Modifications, Consents, Waivers..................11
10.07 Copyright...........................................................11
10.08 Section Headings; Construction......................................11
10.09 Execution Counterparts..............................................12
ARTICLE XI. LIMITATION OF LIABILITY........................................12
ARTICLE XII. BINDING EFFECT.................................................12
SIGNATURE PAGE..............................................................13
SCHEDULE 1.07 SPECIFICATIONS...............................................(I)
SCHEDULE 2.02 CRYSTALS AND/OR MODULES PRICE...............................(II)
SCHEDULE 2.08 NEOPROBE COMPETITORS.......................................(III)
SCHEDULE 9.02 CRYSTAL INGOT PRICE.........................................(IV)
</TABLE>
(ii)
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 4
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
SUPPLY AGREEMENT
THIS AGREEMENT entered into this 8th day of December 1997, between
Neoprobe Corporation, a Delaware corporation with principle offices at 425 Metro
Place North, Suite 300, Dublin, Ohio 43017 (hereinafter "NEOPROBE"), and eV
PRODUCTS, a Division of II-VI Incorporated, located at 375 Saxonburg Blvd.,
Saxonburg, PA 16056 (hereinafter referred to as "eV").
WHEREAS, NEOPROBE is a biopharmaceutical company engaged in the
development and marketing of proprietary products and methods useful in the
treatment of various diseases including cancer; and
WHEREAS, among the products Neoprobe has under development and will
market is a portable radiation detection device consisting of a control unit and
hand-held probe; and
WHEREAS, eV manufactures certain crystals and associated hybrid
electronics which are components of the probe; and WHEREAS, Neoprobe desires to
purchase its requirements for crystals and associated electronics used in the
probe exclusively from eV; and
WHEREAS, eV is willing to sell crystals and associated hybrid
electronics to Neoprobe for the above-described purpose;
NOW, THEREFORE, in consideration of the mutual covenants exchanged
herein, the parties agree as follows:
ARTICLE. DEFINITIONS
--------------------
1.01 Affiliate. The term "Affiliate" as used herein shall mean with
respect to any specified Person, any other Person that directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Person specified. For purposes of this definition,
"control" including, with correlative meanings, the terms "controlled by" and
"under common control with" means ownership directly or indirectly of more than
thirty percent (30%) of the equity capital having the right to vote for election
of directors in the case of a corporation and more than thirty percent (30%) of
the beneficial interest in the case of a business entity other than a
corporation.
1.02 Calendar Year. The term "Calendar Year" shall mean the consecutive
twelve (12) month period beginning January 1 of a year and ending December 31 of
such year.
page - 1
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 5
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
1.03 Certificate of Release (or Certificate of Compliance). As used
herein the term "Certificate of Release" is used to mean the document supplied
by eV with each lot or batch of Crystals and/or Modules stating that all
Crystals and/or Modules (as defined in Section 1.07) manufactured by eV meet or
exceed the Specifications attached hereto as Schedule 1.07.
1.04 Crystal. As used herein, the term "Crystal" shall mean the active
detection medium of the hand-held probe referred to above, consisting of a
Cadmium-Zinc-Telluride (CZT) crystal of dimensions and shape defined by the
Specifications.
1.05 Effective Date. The "Effective Date" of this Agreement shall be
the date first written herein above.
1.06 FDA and Act. The term "FDA" and the term "Act" as used herein
shall mean the United States Food and Drug Administration or any successor
agency having the administrative authority to regulate the approval for testing
or marketing of human pharmaceutical or biological therapeutic products and
medical devices in the United States; and the term "Act" as used herein refers
to the Federal Food, Drug & Cosmetic Act (21 U.S.C. '301 et seq.) and the
regulations promulgated thereunder.
1.07 Crystals and/or Modules. As used herein the term "Crystals and/or
Modules" shall mean a Crystal having certain attached electronic components and
circuits as described in the Specifications attached hereto as Schedule 1.07 and
incorporated herein.
1.08 Person. As used herein the term "Person" shall mean any
individual, corporation, partnership, business trust, business association,
governmental entity, governmental authority or other legal entity.
1.09 Schedules. The Schedules to this Agreement are listed below and
are an integral part of this Agreement and are incorporated herein
<TABLE>
SCHEDULE DESCRIPTION
-------- -----------
<S> <C>
1.07 Specifications
2.02 Crystal and/or Modules Price
2.08 Neoprobe Competitors
9.01 Crystal Ingot Price
</TABLE>
ARTICLE II. FORECAST AND SUPPLY OF CRYSTALS AND/OR MODULES
----------------------------------------------------------
2.01 Supply of Product. Neoprobe hereby agrees to buy and eV hereby
agrees to sell to Neoprobe all of Neoprobe's requirements for the Crystals
and/or
page - 2
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 6
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
Modules. eV shall manufacture the Crystals and/or Modules in accordance with the
Specifications.
2.02 Price of Crystals and/or Modules. The price of the Crystals and/or
Modules supplied by eV to Neoprobe shall be as set forth in Schedule 2.02.
2.03 Working Forecast. Within fifteen (15) days after the Effective
Date, Neoprobe shall deliver to eV a forecast of the quantity of Crystals and/or
Modules required for the initial 24 month period from the Effective Date (the
"Initial Forecast"), and shall thereafter update such forecast on a monthly
basis and provide it to eV on the first day of each month, so that the parties
have a twenty-four (24) month rolling forecast of the estimated requirements for
the Crystals and/or Modules. Any change to the working forecast of +/- 25% or
more requires notification and negotiation prior to acceptance.
2.04 Long-Term Business Forecast. Within thirty (30) days after the
Effective Date, Neoprobe shall deliver to eV a forecast of the quantity of
Crystals and/or Modules required per year for each year from the Effective Date
to December 31, 2002. This long-term forecast is for planning purposes only;
actual production scheduling and order placements shall be made against the
working forecast of Section 2.03.
2.05 Placement of an Order. Neoprobe shall initiate an order for
Crystals and/or Modules by sending to eV a purchase order corresponding to
Neoprobe's forecasted requirements for a Calendar Year. The first or "initial"
purchase order shall be for the period starting January 1, 1998 and ending
December 31, 1998, and shall be for a quantity of Crystals and/or Modules
corresponding to the Initial Forecast less any pre-existing orders. The
"initial" purchase order shall be placed no later than 15 working days from the
Effective Date. Thereafter, Neoprobe shall place purchase orders covering each
12-month period on November 1 of each Calendar Year during the term of the
Agreement. Orders may be placed in writing, by e-mail or by facsimile.
2.06 eV's Obligation to Meet Requirements. eV agrees to supply, in each
Calendar Year, all orders placed by Neoprobe up to one hundred percent (100%) of
Neoprobe's Calendar Year order. eV shall attempt to supply any quantity of
Crystals and/or Modules ordered by Neoprobe in excess of the order.
2.07 Neoprobes Obligation to Meet Requirements. Neoprobe agrees to
receive and/or pay for a minimum of 75% of the Crystals and/or Modules specified
by a Neoprobe purchase order placed pursuant to Section 2.05.
2.08 Exclusivity. During the term of this Agreement and any extensions
thereof, eV shall not supply Crystals and/or Modules for use in hand-held,
radiation detecting, medical devices to any third party listed as specified in
Schedule 2.08 attached hereto, as such Schedule may be amended from time to time
by Neoprobe. In the event the size (quantity and dollar value) of the order
placed by Neoprobe pursuant to Section 2.05 does not increase on a yearly basis
during the
page - 3
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 7
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
initial term of the Agreement, eV shall have the right to market and sell
Crystals to third parties including those listed on Schedule 2.08.
2.09 Shipment of and Payment for Crystals and/or Modules. eV shall ship
all Crystals and/or Modules C.I.P. Neoprobe's designated facility. Neoprobe
shall pay eV for Crystals and/or Modules within thirty (30) days after receipt
of the invoice for Crystals and/or Modules and receipt of a Certificate of
Release for the Crystals and/or Modules.
ARTICLE III. TOOLING
--------------------
3.01 Ownership of Tooling. eV shall procure and/or produce upon mutual
pre-approvals, all tools, dies, jigs, and fixtures required to manufacture the
Crystals and/or Modules. eV shall invoice Neoprobe, at mutually pre-approved
amounts and intervals, for all labor and materials required to procure or
produce all such tooling, jigs, fixtures, and the like, and upon payment
Neoprobe shall obtain unrestricted ownership thereof and to the detailed
assembly drawings for such tooling. Neoprobe shall pay eV for all such items
within thirty (30) days after receipt of the invoice. All replacement tools
required shall also be owned by Neoprobe upon payment by Neoprobe of the cost
thereof. Termination of this Agreement shall result in the surrender by eV of
all tools, drawings, for tools, replacement tools, fixtures and jibs, paid for
and owned by Neoprobe.
3.02 Tooling Maintenance. At all times under this Agreement during
which eV has possession of Neoprobe tooling, eV shall have the responsibility of
performing normal, expected maintenance and repairs. The cost of modifying or
replacing or rebuilding Neoprobe owned tooling worn through usage or in need of
major repair for reasons other than lack of periodic maintenance shall be borne
by Neoprobe. eV shall be responsible for such costs if such costs are incurred
due to a failure to perform proper maintenance. Payment for the cost of any
other required tooling changes shall be negotiated by the parties prior to any
change. All modifications and major repairs to tooling must be approved in
advance by Neoprobe. eV will obtain a warranty on all tooling purchased by eV
for Neoprobe that warrants the tooling against defect during its normal useful
life and that obligates the supplier to replace without cost any defective
tooling. Neoprobe shall have the right to inspect all tooling during normal
business hours. eV agrees that it will obtain agreement from any third parties
that will be given possession of Neoprobe owned tooling that such third parties
will permit Neoprobe to inspect tooling during normal business hours.
3.03 Tooling Removal. Upon expiration or termination of this Agreement,
Neoprobe shall have the right to take possession of and remove from the eV
facility or from the facility of any third party, all tooling owned by Neoprobe
and all confidential information owned by Neoprobe upon request and upon any
expiration, cancellation, or termination of this Agreement. The cost of removing
and transferring such tooling shall be borne by Neoprobe. In addition to jigs,
fixtures, and tooling, Neoprobe may take possession of a detailed assembly
drawing for such
page - 4
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 8
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
tooling subject to the conditions stated. eV assumes no patent responsibility
and gives no express warranty whatsoever on tooling and equipment removed and,
other than warranty of title, such tooling is removed "as is".
ARTICLE IV. TERM AND TERMINATION
--------------------------------
4.01 Term. Upon execution by both parties, this Agreement shall be
effective as of the date first set forth above and shall expire on December 31,
2002; provided however, that unless either party notifies the other in writing
no later than October 31 of that year, the Agreement shall automatically renew
for an additional three (3) year period, to end December 31, 2005.
4.02 Termination for Material Breach. Either party may terminate this
Agreement in the event of a material breach by the other, provided that the
party asserting such breach first serves written notice of the alleged breach on
the offending party and such alleged breach is not cured within (60) days of
said notice.
4.03 Termination for Insolvency. In the event that either party shall
become insolvent or shall suspend its business, or shall file a voluntary
petition or any answer admitting the jurisdiction of the court and the material
allegations of, or shall consent to, an involuntary petition pursuant to or
purporting to be pursuant to any reorganization or insolvency law of any
jurisdiction, or shall make an assignment for the benefit of creditors, or shall
apply for or consent to the appointment of a receiver or trustee of all or a
substantial part of its property (such party, upon the occurrence of any such
event, a "Bankrupt Party"), then to the extent permitted by the law the other
party hereto may thereafter immediately terminate this Agreement by giving
notice of termination to the Bankrupt Party.
4.04 Rights or Obligations Upon Termination. Termination of this
Agreement, for whatever reason, shall not affect any rights or obligations which
may have accrued to either party prior to the effective date of termination.
4.05 Confidentiality Upon Termination. The obligations of
confidentiality in Article IX and of Indemnification as provided in Article VIII
shall survive the expiration or termination of this Agreement.
ARTICLE V. REGULATORY
---------------------
5.01 Access to eV's Facilities. Neoprobe shall have access to eV's
manufacturing facility during regular business hours to inspect relevant
portions of eV's assembly and test equipment and facilities. In addition,
Neoprobe shall have access to any relevant books, records and other
documentation of eV reasonably necessary to assure that eV is in compliance with
all applicable federal, state and local rules and regulations.
page - 5
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 9
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
5.02 Regulatory Support. eV shall provide Neoprobe at no additional
charge, with relevant documents and technical information pertaining to the
Crystals and/or Modules, that Neoprobe may require in support of its regulatory
filings. In the event additional regulatory support over and above that just
described is required by Neoprobe, eV shall provide such support and shall
charge Neoprobe for the labor and materials used.
5.03 The Manufacturing Facility. eV represents and warrants that it
shall use its best efforts to maintain the relevant portions of its facilities
in such a fashion as to be in compliance with applicable federal, state and
local rules and regulations.
ARTICLE VI. REPRESENTATIONS & WARRANTIES
----------------------------------------
6.01 Product Warranty. eV hereby represents and warrants that all
Crystals and/or Modules sold to Neoprobe hereunder at the time of shipment to
Neoprobe shall have been:
(i) manufactured in accordance with the Specifications;
(ii) manufactured, packaged, stored and shipped in conformity with
all applicable requirements; and
(iii) title to all Crystals and/or Modules sold hereunder shall pass
to Neoprobe as provided herein free and clear of any security
interest, lien or other encumbrance.
ARTICLE VII. INDEMNIFICATION
----------------------------
7.01 eV Indemnity. eV agrees to indemnify, protect and defend Neoprobe
and hold Neoprobe harmless from and against any claims, damages, liability,
harm, loss, costs, penalties, lawsuits, threats of lawsuit, recalls or other
governmental action, including reasonable attorneys' fees, brought or claimed by
any third party which (i) arise as the result of eV's breach of this Agreement
or of any warranty or representation made to Neoprobe under this Agreement; or,
(ii) which result from any claim made against Neoprobe in connection with eV's
supply of defective Crystals and/or Modules to Neoprobe.
7.02 Neoprobe Indemnity. Neoprobe agrees to indemnify, protect, and
defend eV and hold eV harmless from and against any claims, damages,
liabilities, harm, loss, costs, penalties, lawsuits, threats of lawsuit, recalls
or other governmental action, including reasonable attorneys' fees, brought or
claimed by any third party, which (i) arise out of Neoprobe's breach of this
Agreement or of any warranty or representation to eV under this Agreement; or,
arise in connection with Neoprobe's sale, marketing or distribution of Devices
containing the Crystals and/or Modules or other activities or actions in
connection with the Crystals and/or Modules.
page - 6
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 10
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
7.03 Notice of Defense of Actions. Each party shall give the other
prompt notice of any potential liability, and promptly after receipt by a party
claiming indemnification under this Article VII of notice of the commencement of
any action, such indemnified party shall notify the indemnifying party of the
commencement of the action and generally summarize such action. The indemnifying
party shall have the right to participate in and to assume the defense of such
action with counsel of its choosing. An indemnifying party shall not have the
right to direct the defense in such an action of an indemnified party if counsel
to such indemnified party has reasonably concluded that there may be defenses
available to it that are different from or additional to those available to the
indemnifying party; provided, however, that in such event, the indemnified party
shall bear the fees and expenses of separate counsel reasonably satisfactory to
the indemnifying party. The failure to notify an indemnifying party promptly of
the commencement of any such action, if prejudicial to the ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Article VII. No settlement of any claim or action
may be made without the consent of the indemnifying party (which consent shall
not be unreasonably withheld or delayed).
ARTICLE VIII. CONFIDENTIALITY
-----------------------------
8.01 Confidential Information. Each party ("Receiving Party") shall
maintain in confidence all information heretofore or hereafter disclosed by the
other ("Disclosing Party") during the term of this Agreement and for a period of
five (5) years following the termination or expiration of the term, which the
Receiving Party knows or has reason to know are trade secrets and other
proprietary information owned by or licensed to the other, including, but not
limited to information relating to the Crystals and/or Modules, the Device or
the Crystal as well as licenses, patents, patent applications, technology or
processes and business plans of the other party, including, without limitation,
information designated as confidential in writing from one party to the other
(all of the foregoing hereinafter referred to as "Confidential Information"),
and shall not use such Confidential Information except as permitted by this
Agreement or disclose the same to anyone other than those of its officers,
directors or employees as are necessary in connection with such party's
activities as contemplated by this Agreement. Each party shall use its best
efforts to ensure that its officers, directors and employees do not disclose or
make any unauthorized use of such Confidential Information. Each party shall
notify the other promptly upon discovery of any unauthorized use or disclosure
of the other's Confidential Information.
8.02 Limitations on Confidentiality. The obligation of confidentiality
contained in this Article VIII shall not apply to the extent that: i) the
Receiving Party is required to disclose information by applicable law,
regulation or order of a governmental agency or a court of competent
jurisdiction; ii) the Receiving Party can demonstrate that the disclosed
information was at the time of disclosure already in the public domain other
than as a result of actions or failure to act of the Receiving Party, its
officers, directors or employees, in violation hereof; iii) the
page - 7
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 11
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
disclosed information was rightfully known by the Receiving Party (as shown by
its written records) prior to the date of disclosure to the Receiving Party in
connection with this Agreement; or iv) the disclosed information was received by
the Receiving Party on an unrestricted basis from a source which is not under a
duty of confidentiality to the other party.
8.03 Disclosure Required by Law. In the event that the Receiving Party
shall be required to make disclosure pursuant to the provisions of Section 8.02
as a result of the issuance of a court order or other government process, the
Receiving Party shall promptly, but in no event more than forty-eight (48) hours
after learning of such court order or other government process, notify, by
personal delivery or facsimile, all pursuant to Section 12.04 hereof, the
Disclosing Party and, at the Disclosing Party's expense, the Receiving Party
shall: a) take all reasonably necessary steps requested by the Disclosing Party
to defend against the enforcement of such court order or other government
process, and b) permit the Disclosing Party to intervene and participate with
counsel of its choice in any proceeding relating to the enforcement thereof.
8.04 Equitable Remedies for Breach of Confidentiality. The parties
acknowledge that their failure to comply with the provisions of Section 8.01 of
this Article VIII may cause irreparable harm and damage to the name and
reputation of the other party for which no adequate remedy may be available at
law. Accordingly, the parties agree that upon a breach by a party of such
provisions, the non-breaching party may, at its option, enforce the obligations
of the breaching party under those provisions by seeking equitable remedies in a
court of competent jurisdiction.
ARTICLE IX. PROTECTION OF SUPPLY
--------------------------------
9.01 Disaster Recovery. The Parties agree that it is in the best
interest of both Parties for Neoprobe to have assurance of an uninterrupted
supply of Crystals for use in the Crystals and/or Modules. Accordingly, eV
agrees that no later than one hundred twenty (120) days after the Effective Date
of this Agreement it will start to store, in an off-site storage location
(storage), an amount of crystal material sufficient to produce a twelve (12)
month supply of Crystals. This will be accomplished by taking the mass
equivalent (in kilograms) of one (1) ingot per month from the eV production
furnaces and placing it in storage immediately subsequent to performing a
standard characterization and qualification of said material. The amount of
crystal material to be maintained in storage will be determined by reviewing the
Forecast as specified in Section 2.03 and the projected fabrication yield. The
location of the off-site storage location shall be determined by mutual
agreement.
9.02 Placement of Ingot Order. Neoprobe shall initiate an order for the
required mass of Crystal by sending to eV a purchase order corresponding to the
mass equivalent to a 12 month supply, to be placed in the storage location
during the first sixteen (16) month period of the Agreement. This order is to be
placed no later than fifteen (15) days following the issuance of the Initial
Forecast. The price
page - 8
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 12
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
of the mass equivalent supplied by eV to storage shall be as set forth in
Schedule 9.02 attached hereto and incorporated herein. Neoprobe shall pay eV for
the mass equivalent within thirty (30) days after receipt of material
certification and transfer into storage. The total mass of Crystal in storage
shall be reviewed by both Neoprobe and eV with each update to the fifteen (15)
month rolling forecast (as specified in Section 2.03). Neoprobe shall initiate
subsequent purchase orders to increase the total mass in storage to maintain a
12 month supply per the latest forecast. In the event that Neoprobe elects to
consume Crystal that resides in storage, eV shall deduct from the Crystals
and/or Modules price, the respective value of the Crystal.
9.03 Close of eV's Business. During the term of this Agreement, in the
event eV shall cease to do business, eV shall notify Neoprobe at least ninety
(90) days prior to going out of business and Neoprobe shall have the following
rights:
a) Right to purchase on commercial terms no more onerous than
those governing this Agreement at the time of notification by
eV of its intent to cease business, all work-in-progress
relating to this Agreement including but not limited to,
crystal ingots, Crystals and/or Modules; and
b) Right of first refusal to purchase on reasonable commercial
terms all manufacturing equipment, technology and know-how
necessary for the production of Crystals and/or Modules.
ARTICLE X. MISCELLANEOUS
------------------------
10.01 Force Majeure. Neither of the parties to this Agreement shall be
liable to the other party for any loss, injury, delay, damage or other casualty
suffered or incurred by such other party due to strikes, lockouts, accidents,
fire, delays in manufacture, transportation or delivery of material, embargoes,
inability to ship, explosions, floods, war, governmental action or any other
cause similar thereto which is beyond the reasonable control of such other party
and any failure or delay by a party in the performance of any of its obligations
under this Agreement shall not be considered as a breach of this Agreement due
to, but only so long as there exists, one or more of the foregoing causes;
provided, however, that if eV cannot complete an order within ninety (90) days
due to any such cause, Neoprobe may cancel the order without liability to eV.
10.02 Relationship. This Agreement shall not be construed to create
between the parties hereto or their respective successors or permitted assignees
the relationship of principal and agent, joint-venturers, co-partners or any
other similar relationship, the existence of which is hereby expressly denied by
each party
page - 9
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 13
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
and each of the parties shall in all matters connected to this Agreement be
independent contractors. Neither party shall be liable to any third party in any
way for engagement, obligation, contract, representation or transaction or for
any negligent act or omission to act of the other except as expressly provided.
10.03 Governing Law. The provisions of this Agreement shall be governed
in all respects by the laws of the State of Pennsylvania.
10.04 Notice. All notices, proposals, submissions, offers, approvals,
agreements, elections, consents, acceptances, waivers, reports, plans, requests,
instructions and other communications required or permitted to be made or given
hereunder (all of the foregoing hereinafter collectively referred to as
"Communications") shall be in writing, and shall be deemed to have been duly
made or given when: a) delivered personally with receipt acknowledged; b) sent
by registered or certified mail or equivalent, return receipt requested, or c)
sent by facsimile or telex (which shall promptly be confirmed by a writing sent
by registered or certified mail or equivalent, return receipt requested), or d)
sent by recognized overnight courier for delivery within twenty-four (24) hours,
in each case addressed or sent to the parties at the following addresses and
facsimile numbers or to such other or additional address or facsimile as any
party shall hereafter specify by Communication to the other parties:
To Neoprobe: David C. Bupp President
Neoprobe Corporation
425 Metro Pl. N. , Suite 400
Dublin, OH 43017
Fax No.: (614)793-7520
Copy To: P.A. Coburn Legal Counsel
To eV: Bruce Glick
Division Manager
eV PRODUCTS, a Division of II-VI Incorporated
375 Saxonburg Blvd.
Saxonburg, Pa 16056
Fax No.: (412) 352-4435
page - 10
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 14
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
Copy to: Robert D. German
Sherrard, German and Kelly
1, Oliver Plaza, 35th Floor
Pittsburgh, PA 15222
Notice of change of address shall be deemed given when actually
received, all other Communications shall be deemed to have been given, received
and dated on the earlier of: (i) when actually received, or on the date when
delivered personally; (ii) one (1) day after being sent by facsimile, cable,
telex (each promptly confirmed by a writing as aforesaid) or overnight courier;
or four (4) business days after mailing.
10.05 Legal Construction. In case any one or more of the provisions
contained in this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby and the parties will
attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid and unenforceable provision in light of
the tenor of this Agreement, and, upon so agreeing, shall incorporate such
substitute provision in this Agreement.
10.06 Entire Agreement, Modifications, Consents, Waivers. This
Agreement together with the Schedules attached hereto contains the entire
agreement of the parties with respect to the subject matter hereof. This
Agreement may not be modified or amended except by an instrument or instruments
in writing signed by the party against whom enforcement of any such modification
or amendment is sought. Each party hereto may, by an instrument in writing,
waive compliance by the other party hereto with any term or provision of this
Agreement on the part of such other party to be performed or complied with. The
waiver by either party hereto of a breach of any term or provision of this
Agreement shall not be construed as a waiver of any subsequent breach.
10.07 Copyright. Copyright in any drawing, computer software, manual or
other documentation (hereinafter referred to as the "Materials"), produced by eV
solely as a result of its manufacture and release of the Crystals and/or Modules
pursuant to this Agreement shall belong to Neoprobe and eV agrees to take all
necessary steps and execute all necessary documentation, at Neoprobe's expense,
to assign the copyright in such Materials to Neoprobe.
10.08 Section Headings; Construction. The section headings and titles
contained herein are each for reference only and shall not be deemed to affect
the meaning or interpretation of this Agreement. The words "hereby", "herein",
"herein above", "hereinafter", "hereof" and "hereunder", when used anywhere in
this Agreement, refer to this Agreement as a whole and not merely to a
subdivision in which such words appear, unless the context otherwise requires.
The singular shall include the plural, the conjunctive shall include the
disjunctive and the
page - 11
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 15
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
masculine gender shall include the feminine and neuter, and vice versa, unless
the context otherwise requires.
10.09 Execution Counterparts. This Agreement may be executed in any
number of counterparts and each such duplicate counterpart shall constitute an
original, any one of which may be introduced in evidence or used for any other
purpose without the production of its duplicate counterpart. Moreover,
notwithstanding that any of the parties did not execute the same counterpart,
each counterpart shall be deemed for all purposes to be an original, and all
such counterparts shall constitute one and the same instrument, binding on all
of the parties hereto.
ARTICLE XI. LIMITATION OF LIABILITY
-----------------------------------
IN NO EVENT SHALL EITHER PARTY NOR ANY OF ITS RESPECTIVE AFFILIATES BE
LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT,
NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, including, but not limited to, loss
of profits or revenue, loss of use of any equipment, cost of capital, down time
costs, delays, or claims of customers of any of them or other third parties for
such special, indirect, incidental or consequential damages.
ARTICLE XII. BINDING EFFECT
---------------------------
Neither party may directly or indirectly assign, delegate, encumber or
in any other manner transfer any of its rights, remedies, obligations,
liabilities or interests in or arising under this Agreement, without the prior
consent of the other, which consent shall not be unreasonably withheld or
delayed; provided, however, that a party may, upon prior written notice, but
without obtaining prior consent, directly or indirectly assign, delegate,
encumber or in any other manner transfer any of its rights, remedies,
obligations, liabilities or interests in or arising under this Agreement, to: i)
any Affiliate of a party, or ii) any entity which succeeds, by purchasing stock
or assets, by merger or otherwise, to all or substantially all of the assets of
the assigning party. Any attempted assignment, delegation, encumbrance or other
transfer in violation of this Agreement shall be void and of no effect, and
shall be a material breach hereof.
IN WITNESS WHEREOF, the parties have cause this Agreement to be
executed as of the day and year first written above.
(Signature Page - Page 13...)
page - 12
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 16
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
NEOPROBE CORPORATION eV PRODUCTS
Division of II-VI Incorporated
By: /s/ David C. Bupp By: /s/ Francis J. Kramer
David C. Bupp Francis J. Kramer
President, COO President, COO
II-VI Incorporated
Date: December 8, 1997 Date: 12/16/97
cmf971208
page - 13
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 17
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
SCHEDULE 1.07
SPECIFICATIONS
--------------
The Specifications for the Crystal and the Crystals and/or Modules are those
contained in the following documents:
12 mm Probe Specification; Document number ***; May 15, 1997
19 mm Probe Specification; Document number ***; May 15, 1997
*** mm dia. X *** mm thick CdZnTe crystal: Neoprobe dwg.***
*** mm dia. X ***mm thick CdZnTe crystal: Neoprobe dwg.***
eV acknowledges that as of the Effective Date it has a copy of the most current
version of the applicable documents and drawings listed above
(I)
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 18
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
SCHEDULE 2.02
<TABLE>
CRYSTALS AND/OR MODULES PRICE
-----------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ITEM DESCRIPTION QTY UNIT PRICE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 eV-290; 12 mm re-useable probe 250-499 ***
500-999 ***
1000-2499 ***
2500-4999 ***
5000-9999 ***
10,000+ ***
2 eV-291; 19mm re-usable probe 250-499 TBA
500-999 TBA
1000-2499 TBA
2500-4999 TBA
5000-9999 TBA
10,000+ TBA
3 CdZnTe detector crystal, *** mm dia. X *** mm thick 100-249 ***
250-499 ***
500-999 ***
1,000+ ***
4 CdZnTE detector crystals,*** mm dia. X *** mm thick 100-249 ***
250-499 ***
500-999 ***
1000+ ***
</TABLE>
1) Prices are correct as of November 30, 1997 and are subject to revision
annually
2) Prices are valid for Detector specification as per Schedule 1.07 of
Supplier Agreement dated November 21, 1997. Any change in specification
may result in a revision of these prices.
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 19
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
SCHEDULE 2.08
NEOPROBE COMPETITORS*
---------------------
1. ***
2. ***
3. ***
4. ***
5. ***
6. ***
7. ***
8. ***
9. ***
10. ***
11. ***
12. ***
*Includes Affiliates
(III)
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 20
Omitted portions of this Exhibit are subject to a Request for
Confidential Treatment under Rule 24b-2.
SCHEDULE 9.02
CRYSTAL INGOT PRICE
-------------------
CdZnTe material costs us *** per kilogram to grow. A typical ingot yields ***
kilograms of good CdZnTe (before yield losses). According to latest forecasts,
we will need to dedicate *** furnaces to the growth of material for Neoprobe
detectors. This equates to *** kilograms of material; therefore, a ***-month
supply of CdZnTe, at the current estimated detector production rate, will cost
***.
(IV)
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 1
Exhibit 11.1
<TABLE>
NEOPROBE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
<CAPTION>
Year Ended
December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net Loss $(20,969,143) $(23,246,528) $(28,032,752)
Weighted average number of shares outstanding:
Weighted average common shares
outstanding beginning of period 16,966,814 22,586,527 22,763,430
Weighted average common shares
issued during period 2,776,835 148,115 78,802
-------------------------------------------------
Weighted average number of shares outstanding
used in computing basic net loss per share 19,743,649 22,734,642 22,842,232
=================================================
Weighted average number of shares used in
computing fully diluted net loss per share 19,743,649 22,734,642 22,842,232
=================================================
Earnings (Net Loss) Per Share:
Basic $(1.06) $(1.02) $(1.23)
=================================================
Fully diluted $(1.06) $(1.02) $(1.23)
=================================================
</TABLE>
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
Neoprobe Europe AB, a Swedish corporation
Neoprobe (Israel), Ltd., an Israeli limited liability company
Neoprobe-Peptor JV - L.L.C.
Cira Technologies, Inc.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Neoprobe Corporation and Subsidiaries listed below of our report dated February
20, 1998, on our audits of the consolidated balance sheet of Neoprobe
Corporation and Subsidiaries as of December 31, 1997, and the related
consolidation statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1996 and 1997, which report is included in this
Annual Report on Form 10-K.
Form S-3 File No. 33-72700
Form S-3 File No. 33-73622
Form SB-2 File No. 33-86000
Form S-3 File No. 33-93438
Form S-3 File No. 33-93858
Form S-3 File No. 333-15989
Form S-8 File No. 33-70074
Form S-8 File No. 33-81410
Form S-8 File No. 333-05143
PricewaterhouseCoopers LLP
Columbus, Ohio
April 9, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Neoprobe Corporation:
We consent to incorporation by reference in the registration statements on Form
S-3 (Nos. 33-72700, 33-73622, 33-93438, 33-93858, 333-15989), on Form SB-2 (No.
33-86000) and on Form S-8 (Nos. 33-70074, 33-81410, and 333-05143) of Neoprobe
Corporation of our report dated March 31, 1999, relating to the consolidated
balance sheet of Neoprobe Corporation and subsidiaries as of December 31, 1998,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for the year then ended, which
report appears in the December 31, 1998, annual report on Form 10-K of Neoprobe
Corporation.
Our report dated March 31, 1998, contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations and has a net
capital deficiency, which raise substantial doubt about its ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
KPMG LLP
Columbus, Ohio
April 9, 1999
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
The undersigned who is a director or officer of Neoprobe Corporation, a
Delaware corporation (the "Company");
Does hereby constitute and appoint David C. Bupp, Brent L. Larson and Patricia
A. Coburn to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full
power of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the Annual
Report of the Company on Form 10-K, and any amendments or supplements to
such Annual Report; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Annual Report, and generally to act for and in the name of the undersigned
with respect to such filings as fully as could the undersigned if then
personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be
governed by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Ohio.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 30th day of
March, 1999.
/s/ Melvin D. Booth
---------------------------
Melvin D. Booth
<PAGE> 2
POWER OF ATTORNEY
The undersigned who is a director or officer of Neoprobe Corporation, a
Delaware corporation (the "Company");
Does hereby constitute and appoint Brent L. Larson and Patricia A. Coburn to be
his agents and attorneys-in- fact;
Each with the power to act fully hereunder without the other and with full
power of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the Annual
Report of the Company on Form 10-K, and any amendments or supplements to
such Annual Report; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Annual Report, and generally to act for and in the name of the undersigned
with respect to such filings as fully as could the undersigned if then
personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be
governed by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Ohio.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 8th day of
March, 1999.
/s/ David C. Bupp
------------------------------
David C. Bupp
<PAGE> 3
POWER OF ATTORNEY
The undersigned who is a director or officer of Neoprobe Corporation, a
Delaware corporation (the "Company");
Does hereby constitute and appoint David C. Bupp, Brent L. Larson and Patricia
A. Coburn to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full
power of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the Annual
Report of the Company on Form 10-K, and any amendments or supplements to
such Annual Report; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Annual Report, and generally to act for and in the name of the undersigned
with respect to such filings as fully as could the undersigned if then
personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be
governed by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Ohio.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 4th day of
March, 1999.
/s/ John S. Christie
----------------------------------
John S. Christie
<PAGE> 4
POWER OF ATTORNEY
The undersigned who is a director or officer of Neoprobe Corporation, a
Delaware corporation (the "Company");
Does hereby constitute and appoint David C. Bupp, Brent L. Larson and Patricia
A. Coburn to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full
power of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the Annual
Report of the Company on Form 10-K, and any amendments or supplements to
such Annual Report; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Annual Report, and generally to act for and in the name of the undersigned
with respect to such filings as fully as could the undersigned if then
personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be
governed by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Ohio.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 8th day of
March, 1999.
/s/ Julius R. Krevans
----------------------------------
Julius R. Krevans
<PAGE> 5
POWER OF ATTORNEY
The undersigned who is a director or officer of Neoprobe Corporation, a
Delaware corporation (the "Company");
Does hereby constitute and appoint David C. Bupp and Patricia A. Coburn to be
his agents and attorneys-in- fact;
Each with the power to act fully hereunder without the other and with full
power of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the Annual
Report of the Company on Form 10-K, and any amendments or supplements to
such Annual Report; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Annual Report, and generally to act for and in the name of the undersigned
with respect to such filings as fully as could the undersigned if then
personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be
governed by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Ohio.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 4th day of
March, 1999.
/s/ Brent L. Larson
----------------------------------
Brent L. Larson
<PAGE> 6
POWER OF ATTORNEY
The undersigned who is a director or officer of Neoprobe Corporation, a
Delaware corporation (the "Company");
Does hereby constitute and appoint David C. Bupp, Brent L. Larson and Patricia
A. Coburn to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full
power of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the Annual
Report of the Company on Form 10-K, and any amendments or supplements to
such Annual Report; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Annual Report, and generally to act for and in the name of the undersigned
with respect to such filings as fully as could the undersigned if then
personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be
governed by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Ohio.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 26th day of
March, 1999.
/s/ Michael P. Moore
-------------------------------
Michael P. Moore
<PAGE> 7
POWER OF ATTORNEY
The undersigned who is a director or officer of Neoprobe Corporation, a
Delaware corporation (the "Company");
Does hereby constitute and appoint David C. Bupp, Brent L. Larson and Patricia
A. Coburn to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full
power of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the Annual
Report of the Company on Form 10-K, and any amendments or supplements to
such Annual Report; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Annual Report, and generally to act for and in the name of the undersigned
with respect to such filings as fully as could the undersigned if then
personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be
governed by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Ohio.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 3rd day of
March, 1999.
/s/ J. Frank Whitley, Jr.
----------------------------
J. Frank Whitley, Jr.
<PAGE> 8
POWER OF ATTORNEY
The undersigned who is a director or officer of Neoprobe Corporation, a
Delaware corporation (the "Company");
Does hereby constitute and appoint David C. Bupp, Brent L. Larson and Patricia
A. Coburn to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full
power of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the Annual
Report of the Company on Form 10-K, and any amendments or supplements to
such Annual Report; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Annual Report, and generally to act for and in the name of the undersigned
with respect to such filings as fully as could the undersigned if then
personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be
governed by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Ohio.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 5th day of
March, 1999.
/s/ James F. Zid
------------------------
James F. Zid
<PAGE> 1
EXHIBIT 24.2
SECRETARY'S CERTIFICATE
I, Patricia A. Coburn, certify that I am the duly elected, qualified and
acting Assisting Secretary of Neoprobe Corporation, a Delaware corporation (the
"Corporation"), that I am authorized and empowered to execute this Certificate
on behalf of the Corporation with respect to its Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 and further certify that the following
is a true, complete and correct copy of a resolution adopted by the Board of
Directors of the Corporation on February 11, 1999, which resolution remains in
full force and effect as of the date of this certificate:
RESOLVED, that each representative, officer or director who may be
required to execute the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 and any amendment thereof be,
and each of them hereby is, authorized to execute a Power of Attorney
appointing David C. Bupp, Brent L. Larson and Patricia A. Coburn as his
true and lawful attorney and agent to execute in his name, place and
stead (in any capacity) the Annual Report on Form 10-K and any
amendments thereto, and all instruments necessary or in connection
therewith, and to file the same with the Commission, each of which
attorney and agent shall have the power to do and perform in the name
of and on behalf of each said representative, officer and director, or
both, as the case may be, every act whatsoever necessary or advisable
to be done in the premises as fully and to all intents and purposes as
such representative, officer or director might or could do in person.
IN WITNESS WHEREOF, I have hereunto set my hand as of March 30, 1999.
/s/ Patricia A. Coburn
---------------------------------------
Patricia A. Coburn, Assistant Secretary
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<PERIOD-START> JAN-01-1998
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<CASH> 3,054,936
<SECURITIES> 448,563
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