<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _______TO________
COMMISSION FILE NUMBER: 0-26520
NEOPROBE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-1080091
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
425 METRO PLACE NORTH, SUITE 300, DUBLIN, OHIO 43017
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 614.793.7500
Indicate by check 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___
22,966,017 SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE
(Number of shares of issuer's common equity outstanding as of the
close of business on May 6, 1999)
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,933,829 $ 3,054,936
Available-for-sale securities -- 448,563
Accounts receivable 1,913,771 2,069,633
Inventory 1,491,174 1,578,912
Prepaid expenses 630,319 720,420
Other current assets 149,623 147,008
------------ ------------
Total current assets 8,118,716 8,019,472
------------ ------------
Investment in affiliates 1,500,000 1,500,000
Property and equipment 3,069,477 3,073,931
Less accumulated depreciation and amortization (1,732,418) (1,654,661)
------------ ------------
1,337,059 1,419,270
------------ ------------
Intangible assets 782,028 773,863
Other assets 227,667 281,594
------------ ------------
Total assets $ 11,965,470 $ 11,994,199
============ ============
</TABLE>
CONTINUED
2
<PAGE> 3
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Current liabilities:
Line of credit $ 1,000,000 $ 1,000,000
Notes payable to finance company 162,583 242,163
Capital lease obligations, current 100,275 99,539
Accounts payable 1,959,973 2,857,717
Accrued liabilities 2,281,604 2,813,321
------------- -------------
Total current liabilities 5,504,435 7,012,740
------------- -------------
Capital lease obligations 130,469 155,816
------------- -------------
Total liabilities 5,634,904 7,168,556
------------- -------------
Commitments and contingencies
Redeemable convertible preferred stock:
Series B; $.001 par value; 63,000 shares and 0 shares
authorized at March 31, 1999 and December 31, 1998,
respectively; 30,000 shares and 0 shares issued and
outstanding at March 31, 1999 and December 31, 1998,
respectively 1,814,525 --
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares
authorized at March 31, 1999 and December 31,1998;
none issued and outstanding (500,000 shares designated
as Series A, $.001 par value, at March 31, 1999 and
December 31, 1998; none outstanding) -- --
Common stock; $.001 par value; 50,000,000 shares
authorized; 22,967,910 shares issued and
outstanding at March 31, 1999; 22,887,910
shares issued and outstanding at December 31, 1998 22,968 22,888
Additional paid-in capital 120,272,899
121,268,947
Accumulated deficit (116,700,030) (115,395,283)
Accumulated other comprehensive loss (75,844) (74,861)
------------- -------------
Total stockholders' equity 4,516,041 4,825,643
------------- -------------
Total liabilities and stockholders' equity $ 11,965,470 $ 11,994,199
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 1,910,971 $ 863,891
Cost of goods sold 619,653 224,473
------------ ------------
Gross profit 1,291,318 639,418
------------ ------------
Operating expenses:
Research and development 462,335 4,753,989
Marketing and selling 1,122,802 1,095,977
General and administrative 1,005,226 1,425,840
Losses related to subsidiaries in liquidation 86,825 651,469
------------ ------------
Total operating expenses 2,677,188 7,927,275
------------ ------------
Loss from operations (1,385,870) (7,287,857)
------------ ------------
Other income (expenses):
Interest income 26,659 254,091
Interest expense (16,526) (10,623)
Other 70,990 (19,223)
------------ ------------
Total other income 81,123 224,245
------------ ------------
Net loss (1,304,747) (7,063,612)
------------ ------------
Conversion discount on preferred stock 1,795,775 --
Preferred stock dividend requirements 18,750 --
------------ ------------
Loss attributable to common stockholders $ (3,119,272) $ (7,063,612)
============ ============
Loss per common share (basic and diluted) $ (0.14) $ (0.31)
============ ============
Weighted average shares
outstanding during the period (basic and diluted) 22,948,354 22,799,277
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
NEOPROBE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
Net cash used in operating activities $(2,231,289) $(7,838,003)
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities 443,729 2,046,796
Maturities of available-for-sale securities 4,467 3,100,000
Purchase of property and equipment (47,738) (1,219,547)
Proceeds from sales of property and equipment 20,550 --
Patent costs (12,436) (15,599)
----------- -----------
Net cash provided by investing activities 408,572 3,911,650
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 80 114,343
Proceeds from issuance of redeemable convertible
preferred stock, net 2,810,573 --
Payments under notes payable (79,580) (66,519)
Payments under capital leases (24,610) (40,640)
Proceeds from long-term debt -- 2,345,594
----------- -----------
Net cash provided by financing activities 2,706,463 2,352,778
----------- -----------
Effect of exchange rate changes on cash (4,853) (2,966)
----------- -----------
Net increase (decrease) in cash and cash equivalents 878,893 (1,576,541)
Cash and cash equivalents at beginning of period 3,054,936 9,921,025
----------- -----------
Cash and cash equivalents at end of period $ 3,933,829 $ 8,344,484
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE> 6
1. BASIS OF PRESENTATION:
The information presented for March 31, 1999 and 1998, and for the
periods then ended is unaudited, but includes all adjustments (which
consist only of normal recurring adjustments) which the management of
Neoprobe Corporation (the "Company") believes to be necessary for the
fair presentation of results for the periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The results for
the interim period are not necessarily indicative of results to be
expected for the year. The financial statements should be read in
conjunction with the Company's audited financial statements for the
year ended December 31, 1998, which were included as part of the
Company's Annual Report on Form 10-K, as amended. Certain 1998 amounts
have been reclassified to conform with the 1999 presentation.
2. COMPREHENSIVE INCOME (LOSS): Due to the Company's net operating loss
position, there are no income tax effects on comprehensive income
components for any of the periods presented. Prior year financial
statements have been reclassified to conform to the requirements of
SFAS No. 130.
Other comprehensive income (loss) consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Net loss $ 1,304,747 $ 7,063,612
Foreign currency translation adjustment (983) (12,419)
Unrealized gains on securities 219 3,230
----------- -----------
Other comprehensive loss $ 1,303,983 $ 7,054,423
=========== ===========
</TABLE>
3. INVENTORY:
The components of inventory are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Materials and component parts $ 332,007 $ 277,505
Finished goods 1,159,167 1,301,407
---------- ----------
$1,491,174 $1,578,912
========== ==========
</TABLE>
4. EQUITY:
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 of transaction costs). The Series B have a $100 per
share stated value and is convertible into common stock of the
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Company. In connection with the private placement, the Company
also issued warrants to purchase 2.9 million shares of 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%. The
dividends are recorded as incremental yield to the preferred
stockholders in the Company's loss per common share calculation
and are included in the carrying value of the Series B at March
31, 1999.
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 of common stock 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 stockholders 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
issuance 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 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 close on an additional common
stock $3 million placement of convertible preferred stock in the
fourth quarter of 1999, at the earliest, subject to the completion
of several conditions, including stockholder approval of the
transaction and meeting certain sales and, stock performance
targets. 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
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<PAGE> 8
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 preferred stock and the related warrants issued were
recorded at the amount of gross proceeds less the costs of the
financing based upon their relative fair values. The preferred
stock, due to its redemption provisions, is classified as
mezzanine financing above the stockholders' equity section on the
balance sheet. 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 Issues Task Force Topic D-60,
the difference between this conversion price and the closing
market price of $1.81 on February 16, 1999, not to exceed the
amount allocated to the preferred stock, was reflected as
incremental yield to the preferred stockholders in the Company's
loss per common share calculation for the quarter ended March 31,
1999. Additional amounts will be accreted to the preferred stock,
up to redemption value, in the event that redemption is assessed
as probable on the balance sheet date.
b. STOCK OPTIONS: During the first quarter of 1999, the Board
granted options to employees and certain directors of the Company
under the 1996 Stock Incentive Plan (the "Plan") for 405,000
shares of common stock, exercisable at $1.25 per share, vesting
over three to four years. As of March 31, 1999, the Company has
1.7 million options outstanding under two stock option plans. Of
the outstanding options, 865,000 options have vested as of March
31, 1999, at an average exercise price of $5.77 per share.
5. 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(R) (radioimmunoguided surgery) process, and Activated Cellular
Therapy ("ACT"). The Company's current business plan 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 have
been accounted for under the liquidation method of accounting. 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, have been
reclassified from prior year presentations to be presented as losses
relating to subsidiaries in liquidation in the consolidated statements
of operations. Accordingly, the consolidated balance sheet at March 31,
1999, includes $555,000 in current assets of Neoprobe Israel at their
net realizable value and $963,000 in liabilities at the amounts
expected to settle the obligations due.
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The information in the following table is derived directly from the
segments' internal financial reporting used for corporate management
purposes. The expenses attributable to corporate activity, including
amortization and interest, and other general and administrative costs
are not allocated to the operating segments.
<TABLE>
<CAPTION>
($ AMOUNTS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 1999
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenue
U.S. customers $ -- $1,321 $ -- $ -- $1,321
International customers -- 590 -- -- 590
Research and development expenses -- 462 -- -- 462
Marketing and selling expenses -- 1,123 -- -- 1,123
General and administrative expenses -- -- -- 1,005 1,005
Losses related to subsidiaries in liquidation 86 -- -- -- 86
Other income -- -- -- 81 81
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenue
U.S. customers $ -- $ 705 $ -- $ -- $ 705
International customers -- 159 -- -- 159
Research and development expenses 2,591 1,777 386 -- 4,754
Marketing and selling expenses -- 1,096 -- -- 1,096
General and administrative expenses -- -- -- 1,426 1,426
Losses related to subsidiaries in liquidation 651 -- -- -- 651
Other income -- -- -- 224 224
</TABLE>
6. AGREEMENTS:
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 certain of the Company's line of
hand-held gamma detection instruments. 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 BioMedical 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
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.
7. 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. However, it is possible that the Creditors would seek
to pursue claims against the Company
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<PAGE> 10
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 March 31, 1999.
8. LIQUIDITY:
The Company has experienced significant operating losses in each year
since inception, and had an accumulated deficit of approximately $117
million as of March 31, 1999. The Company expects operating losses to
continue during the remainder of 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. 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 March
31, 1999, the Company had cash, cash equivalents, and
available-for-sale securities of $3.9 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 March 31, 1999, the Company had
access to approximately $1.9 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 the
remainder of 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. 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 net
proceeds of $2.8 million. 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.
ITEM 2. 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,
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<PAGE> 11
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.
LIQUIDITY AND CAPITAL RESOURCES
Financing Activities. 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 stockholder 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 stockholders 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 stockholders do not approve the transactions, or if the Company were to
become delisted from the Nasdaq National Market System as a result of failure to
maintain a minimum stock price of $1.00 or failure to maintain a tangible net
worth of $4 million, the Company will be required to redeem the preferred stock
for $3.6 million. If this were to come to pass, it would have a material adverse
effect on the Company's financial condition.
Investing Activities. The Company's investing activities during the first
quarter of 1999 involved primarily the sale of certain available-for-sale
securities to fund operations. The Company engaged in similar activities in
1998. However, in the first quarter of 1998, the Company made significant
capital expenditures on construction at Neoprobe Israel. The Company's 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, 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 at March 31,
1999 includes $555,000 in current assets of Neoprobe Israel at their net
realizable value and $963,000 in liabilities at the amounts expected to settle
the obligations due.
Operating Activities. Through March 31, 1999, the Company's activities have
resulted in an accumulated deficit of $117 million. Substantially all of the
Company's efforts and resources to-date have been 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 since 1997 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 $3.6 million to
fund research and development and general and administrative activities for the
remainder of 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.
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As of March 31, 1999, the Company had cash and cash equivalents and
available-for-sale securities of $3.9 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 March 31,
1999, the Company had access to approximately $1.9 million in unrestricted funds
to finance its operating activities for the remainder of 1999. The Company
currently anticipates that approximately $1.0 million in cash will be used to
finance operating activities during the remainder of 1999. The Company's
business plan contemplates a greater than 80% increase in sales during the last
three quarters of 1999 compared to the same period of 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 previous periods will be maintained. The Company is also 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 adequate funds from the
aforementioned sources, 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 continue to experience cost savings during the remainder 1999, as a result of
modifications to its business plan during 1998 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
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 ever be utilized.
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. The Y2K 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 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
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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 during 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.
Research and development expenses during the first quarter of 1999 were
$462,000, or 17% of operating expenses for the quarter. Marketing and selling
expenses were $1.1 million, or 42% of operating expenses during the quarter, and
general and administrative expenses were $1.0 million, or 37% of operating
expenses for the quarter. Overall, operating expenses for the first quarter of
1999 decreased $5.3 million or 66% over the same quarter in 1998. The Company
anticipates that total operating expenses for the remainder of 1999 will also
decrease over 1998 levels. 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 1998. Marketing expenses,
as a percentage of sales, decreased to 59% of sales for the first quarter of
1999 from 127% of sales for the same period in 1998. The Company expects
marketing and selling expenses for the remainder of 1999 to increase from 1998
levels although such expenses are expected to continue to decrease as a
percentage of sales.
Three months ended March 31, 1999 and 1998
Revenue. Net sales increased $1.0 million or 121% to $1.9 million during the
first quarter of 1999 from $864,000 during the same period in 1998. Sales during
both periods were comprised almost entirely of sales of the Company's hand-held
gamma detection instruments. Instrument sales increased as a result of the
introduction
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during the fourth quarter of 1998 of the neo2000(TM) system and the continuing
growth of the lymphatic mapping technique.
Research and Development Expenses. Research and development expenses decreased
$4.3 million or 90% to $462,000 during the first quarter of 1999 from $4.8
million during the same period in 1998. Approximately $3.4 million of the
decrease is primarily a result of changes to the Company's business plan
implemented during 1998 which suspended substantially all research and
development activities related to the Company's RIGS and ACT initiatives. An
additional $900,000 of the decrease is due to expenses incurred during the first
quarter of 1998 related to the neo2000 system and related devices which were
commercially launched during the fourth quarter of 1998.
Marketing and Selling Expenses. Marketing and selling expenses increased $27,000
or 2% to $1.1 million during the first quarter of 1999 from $1.0 million during
the same period in 1998. However, marketing expenses, as a percentage of sales,
decreased to 59% of sales for the first quarter of 1999 from 127% of sales for
the same period in 1998. These results reflect lower internal marketing expense
levels during the first quarter of 1999 as compared to the same period in 1998
offset by increases in marketing partner commissions over the same periods.
General and Administrative Expenses. General and administrative expenses
decreased $421,000 or 29% to $1.0 million during the first quarter of 1999 from
$1.4 million during the same period in 1998. The decrease was primarily a result
of reductions in headcount and other overhead costs such as space costs, taxes
and insurance.
Other Income. Other income decreased $143,000 or 64% to $81,000 during the first
quarter of 1999 from $224,000 during the same period in 1998. Other income
during the first quarter of 1999 consisted primarily of gains from settlement of
liabilities at less than their face value, while other income during the first
quarter of 1998 consisted primarily of interest income. The Company's interest
income declined due to overall average levels of investments during the first
quarter of 1999 as compared to the same period of 1998.
Losses related to subsidiaries in liquidation. During the fourth quarter of
1998, The Company adopted the liquidation basis of accounting for its two
international subsidiaries. As a result, all operating costs related to those
subsidiaries incurred during the first quarter of 1998 were reclassified to
losses related to subsidiaries in liquidation. The decrease in losses during the
first quarter of 1999 as compared to the same period in 1998 is due to the
completion of the majority of shutdown activities related to these subsidiaries
during 1998.
ITEM 3. 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 March 31, 1999 and December 31,
1998, the Company had, excluding convertible preferred stock, outstanding debt
securities of $1.2 million and $1.2 million respectively. These debt securities
consisted primarily of a variable rate line of credit and fixed rate financing
instruments, with average interest rates of 7% and 7% at March 31, 1999 and
December 31, 1998, respectively. At March 31, 1999 and December 31, 1998, the
fair market values of these 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. At December 31, 1998, the
Company held $449,000 of these available-for-sale securities; however, all such
securities were sold during the quarter ended March 31, 1999.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On February 16, 1999, the Company entered into agreements under which
the Company sold securities for $3 million in order to meet the Company's
immediate need for operating capital. The Company's Board of Directors is asking
stockholders to approve, at the annual meeting of stockholders on May 19, 1999,
this sale and any future sales of securities under these agreements, all of
which are described in more detail below. If stockholders do not give their
approval, the Company must redeem these securities for $3.6 million, which would
deplete the Company's cash. If this happened, the Company might not be able to
continue operations.
THE TRANSACTIONS UNDER WHICH SECURITIES WERE SOLD
General Description of the Sales. On February 16, 1999, the Company
entered into a Preferred Stock and Warrant Purchase Agreement with The Aries
Master Fund, a Cayman Island exempted Company, and The Aries Domestic Fund, L.P.
(collectively "Aries") and a Financial Advisory Agreement with Paramount
Capital, Inc., an affiliate of Aries. Under the Purchase Agreement, the Company
sold preferred stock and warrants to Aries on February 16, 1999 for $3,000,000.
This sale was the first of two possible sales by the Company to Aries and is
referred to as the First Sale, and February 16, 1999 is referred to as the First
Sale Date. If the conditions in the Purchase Agreement are satisfied, the
Company has the option of requiring Aries to purchase more securities for an
additional $3,000,000. This sale is referred to as the Second Sale and the date
on which this sale may occur is referred to as the Second Sale Date.
First Sale of Securities. On the First Closing Date, Aries paid the
Company $3,000,000 and the Company issued to Aries 30,000 shares of Series B
Preferred Stock and warrants to purchase an additional 2,912,621 shares of
Common Stock.
Also, on the First Closing Date, the Company entered into the Advisory
Agreement with Paramount Capital. Under the Advisory Agreement, Paramount
Capital will help the Company find future sources of capital, the Company agreed
to pay Paramount Capital $150,000 and the Company issued 1.5 Option Units to
Paramount Capital as payment for Paramount Capital's services.
Second Sale of Securities. The Company has the right to require Aries
to purchase another 30,000 shares of Series B Preferred Stock and warrants to
purchase an additional 2,912,621 shares of Common Stock from the Company for an
additional $3,000,000 if:
o Stockholders approve the sales;
o A registration statement to register the shares of Common
Stock issuable through securities sold under the Purchase
Agreement and the Advisory Agreement is effective;
o The Company's sales for any two consecutive quarters in the
period from the second quarter of 1999 through the third
quarter of 2000 are at least 90% of the Company's forecast;
and
o The market value of a share of Common Stock is not less than
$1.236 on the day the Company exercises its right or on the
day that Aries is required to buy the additional shares of
Series B Preferred Stock.
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Reasons for the Sales of Securities. The Company sold securities to
Aries because the Company needed working capital. The Company's board of
directors unanimously approved the sale of securities and determined that any
significant delay in selling the securities would seriously jeopardized the
financial viability of the Company.
Meaning of "Market Value". The Purchase Agreement, Advisory Agreement
and Certificate of Designations employ a variety of methods for calculating the
market value of shares. Each method is intended to approximate the fair market
value of a share on a specific day. However, the application of different
methods may result in different numbers in similar situations.
TERMS OF THE SERIES B PREFERRED STOCK
Certificate of Designations. The Certificate of Designations of Series
B Preferred Stock of the Company Corporation dated February 16, 1999, which has
been filed as part of the Company's Certificate of Incorporation and with the
SEC, is the legal instrument that states the terms of the Series B Preferred
Stock.
Dividend Rights and Preferences. Owners of Series B Preferred Stock are
entitled to receive dividends. The dividends accrue daily and are payable on
each six-month and one-year anniversary of the First Sale Date. The Company has
the option of paying these dividends either in cash or in shares of Common
Stock.
The annual dividend rate on a share of Series B Preferred Stock is 5%
of $100 plus all previously accrued but currently unpaid dividends on the share.
On any day that Common Stock trades below $0.55 per share, the annual rate will
be 10%.
Before the Company may declare a dividend on classes of stock that are
junior to the Series B Preferred Stock, including Common Stock and Series A
Preferred Stock, the Company must pay a special dividend of $100 per share to
owners of Series B Preferred Stock, pay all accrued and but unpaid dividends on
the Series B Preferred Stock which have been declared and declare a dividend on
the Series B Preferred Stock which is identical to the dividend being declared
on the other class of stock.
Liquidation Preference. If the Company liquidates, sells substantially
all of its assets, or is involved in a merger which terminates its existence or
in which more than half of the outstanding Common Stock is exchanged for cash,
property or securities of another company, then owners of shares of Series B
Preferred Stock must be paid before owners of shares of other classes.
The per share amount of this payment will be: $100 PLUS the amount of
any unpaid dividends on the share PLUS the excess of any redemption amount due
on the share over the sum of $100 plus the amount of unpaid dividends due or
declared on the share LESS the amount of any dividend previously paid on the
share so that a dividend could be paid on a junior class of shares.
Redemption. The Company is obligated to redeem the outstanding shares
of Series B Preferred Stock for $120 per share if:
o The Company is unable to commence its annual meeting of
stockholders by May 28, 1999 and obtain the stockholder
approval requested here within 30 days of the commencement of
the meeting;
o The Company does not amend the registration statement within
30 days after the Second Sale Date to include the shares of
Common Stock issuable through any securities sold in the
Second Sale;
o The Company does not keep the registration statement effective
for at least 3 years;
o The Company commits a material breach of the Purchase
Agreement which continues for more than
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20 days after the Company is notified of the breach;
o NASDAQ delists the Common Stock;
o The Company fails to properly deliver any of the securities
sold under the Purchase Agreement;
o The Company's auditors materially qualify their opinion on the
Company's financial statements (however, pursuant to a letter
agreement between the Company and Aries dated April 1, 1999,
Aries agreed that the Company receiving an audit opinion
relating to fiscal year 1998 which contains a going concern
qualification does not violate the terms of the Purchase
Agreement or the Certificate of Designations.);
o The Company is liquidated;
o The Company sells substantially all of its assets; or
o The Company is merged out of existence or more than half of
the outstanding Common Stock is exchanged for cash, property
or securities of another company.
Conversion. Generally, each share of Series B Preferred Stock 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 accrued and unpaid dividends on
the share of Series B Preferred Stock by the conversion price. The initial
conversion price for the shares of Series B Preferred Stock sold in the First
Sale 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
equal the market value of a share of Common Stock 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. But the Company may refuse to
convert a share of Series B Preferred Stock that the Company sold in the First
Sale if the share's conversion price is less than $0.55. However, if the
conversion price of a share of Series B Preferred Stock which the Company sold
in the First sale is less than $0.55 for more than 60 trading days in any
12-month period, then the Company must either convert the share at the share's
conversion price or pay the owner cash. The amount of the cash payment per share
of Series B Preferred Stock would be the highest closing price for Common Stock
during the period from the date of the owner's conversion request until the
payment date MULTIPLIED BY the number of shares of Common Stock into which the
share of Series B Preferred Stock is convertible.
The conversion price will be adjusted to prevent the dilution of the
economic interests of the owners of Series B Preferred Stock each time:
o Shares of Common Stock are sold by the Company for less than
the conversion price;
o Shares of Common Stock are sold by the Company for less than
market value;
o Shares of Common Stock are issued by the Company as dividends
on Common Stock;
o Shares of Common Stock are subdivided or combined; or
o The Company enters into a binding contract to sell shares of
Common Stock for a price less than the conversion price or the
market value of Common Stock.
If the Common Stock is reclassified or the Company merges with another
company and is not the continuing
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entity, the owners of shares of Series B Preferred Stock may choose to either
receive the same payments as the owners of Common Stock on an as converted basis
or convert their shares of Series B Preferred Shares into an economically
comparable number of the other company's shares of common stock. The proposed
successor company in any merger must agree to these terms in writing before the
merger may occur.
Any shares of Series B Preferred Stock sold in the Second Sale will
have terms which are similar to the terms of the shares sold in the First Sale.
The terms of the shares of Series B Preferred Stock sold in the Second Sale
include:
o The conversion price will be the market value of a share of
Common Stock on the Second Closing Date;
o The conversion price will be adjusted in the same manner as
the shares of Series B Preferred Stock sold in the First Sale;
o The Company may refuse to convert these shares if the
conversion price is less than half of the market value of a
share of Common Stock on the Second Closing Date; and
o If the conversion price of these shares is less than half of
the market value of a share of Common Stock on the Second
Closing Date for more than 60 trading days in any 12-month
period, then the Company must either convert the shares at the
conversion price or pay the owner cash in an amount calculated
as described above for shares sold in the First Sale.
Conversion Limitations. An owner of Series B Preferred Stock may not
convert its shares into shares of Common Stock if the conversion would cause the
owner to own more than 4.9% of the Company's outstanding Common Stock. An owner
may waive this restriction by giving notice to the Company 61 days before the
conversion.
The rules of the National Association of Securities Dealers, Inc. do
not allow the Company to issue shares of Common Stock representing more than 20%
of the total number of outstanding shares of Common Stock without stockholder
approval. Under the Purchase Agreement and the Advisory Agreement, the Company
is not obligated to issue more than 4,539,582 shares of Common Stock upon
conversion of shares of Series B Preferred Stock if the issuance would violate
the rules of the National Association of Securities Dealers. If further
issuances of shares of Common Stock upon conversion of shares of Series B
Preferred Stock would violate those rules, then the Company will convert the
shares for cash instead of for shares of Common Stock.
Mandatory Conversion. The Company may require an owner of Series B
Preferred Stock to convert its shares if:
o The shares have been outstanding for more than one year;
o The registration statement has been effective for more than
one year; and
o For 20 trading days during any 30 day period ending on the day
the Company demands conversion, the market value of Common
Stock has been more than 300% of the market value of Common
Stock on the one-year anniversary of the date the Company
issued the owner's shares of Series B Preferred Stock.
Voting Rights. Each share of Series B Preferred Stock entitles its
owner to cast the same number of votes the owner would be entitled to cast if
the owner had converted the share on the record date. Owners of shares of Series
B Preferred Stock have the right to vote with owners of Common Stock as a single
class. However, no owner of a share of Series B Preferred Stock may exercise
more than 4.9% of the Company's voting power, but an owner may waive this
restriction by giving the Company notice 61 days in advance.
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The Company may not, without the consent of the owners of a majority of
the shares of Series B Preferred Stock,:
o Amend or repeal any provision of the Company's Certificate of
Incorporation or Bylaws in a way that adversely affects the
rights of the owners of Series B Preferred Stock;
o Change the rights of the Series B Preferred Stock;
o Authorize any security with rights superior or equal to those
of the Series B Preferred Stock or
o Approve the incorporation of any subsidiary of the Company.
ARIES' WARRANTS
General Terms. Aries received warrants to purchase 2,912,621 shares of
Common Stock in the First Sale and may receive warrants to purchase an
additional 2,912,621 shares of Common Stock in the Second Sale. The warrants
expire seven years after the date of their issuance.
Exercise of the Warrants. Aries may purchase the shares available under
the warrants by exercising the warrants and paying the exercise price. Aries
also has the option of making a "cashless" exercise of the warrants. The number
of shares of Common Stock Aries would receive upon a cashless exercise of a
warrant is the number of shares available under the warrant multiplied by the
excess of the market value of Common Stock on the date of exercise over the
exercise price, and divided by the market value of Common Stock on the date of
exercise.
Exercise Price. Initially, the exercise price per share of the warrants
issued in the first sale is $1.03. If the market value of Common Stock on
February 16, 2000 is less than $1.03 then the exercise price will be reset to
the market value of Common Stock on February 16, 2000, but not less than $0.515,
and the number of shares issuable upon the exercise of a warrant will be
increased to the aggregate pre-reset exercise price of the warrant divided by
the per share reset exercise price.
If the exercise price of a warrant sold in the First Sale is, and has
been for 60 or more trading days in any 12-month period, less than $0.62, the
Company will effect an exercise by either delivering shares of Common Stock or
making a cash payment. The cash payment would equal the number of shares for
which the warrant is exercised multiplied by the highest closing trade price of
Common Stock during the period from the date of exercise and the date of
payment.
The exercise price will be adjusted to prevent the dilution of the
economic interests of warrant owners each time:
o Shares of Common Stock are sold by the Company for less than
the exercise price;
o Shares of Common Stock are sold by the Company for less than
market value;
o Shares of Common Stock are issued by the Company as dividends
on Common Stock;
o Shares of Common Stock are subdivided or combined; or
o The Company enters into a binding contract to sell shares of
Common Stock for a price less than the exercise price or the
market value of Common Stock.
If the exercise price of a warrant is adjusted, the number of shares issuable
upon the exercise of the warrant will be
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adjusted to the aggregate pre-adjustment exercise price of the warrant divided
by the per share adjusted exercise price.
Initially, the exercise price of the warrants sold in the Second Sale
will be the market value of Common Stock on the Second Sale Date. The exercise
price of these warrants will be adjusted in the same manner as the warrants sold
in the First Sale.
If the Common Stock is reclassified, the Company sells substantially
all of its assets or the Company merges with another company and is not the
continuing entity, the owners of warrants will be entitled to the cash,
securities and property they would have received if they had exercised the
warrants immediately prior to the reclassification, sale or merger.
Mandatory Exercise. The Company may require Aries to exercise the
warrants if: (A) the warrants have been outstanding for more than one year and
(B) the market value of Common Stock has been more than 300% of the warrant
exercise price for 20 trading days during any 30 day period ending on the day
the Company demands exercise.
Exercise Limitations. Aries may not exercise a warrant if the exercise
would cause Aries to own more than 4.9% of the Company's outstanding Common
Stock. Aries may waive this restriction by giving notice to the Company at least
61 days before the exercise.
OPTION UNITS
General Terms. Paramount received 1.5 Option Units in the First Sale.
Each Option Unit entitles Paramount Capital to purchase, for an exercise price
of $100,000, 1,000 shares of Series B Preferred Stock and 97,087 Class L
Warrants. Paramount Capital has the option of making a "cashless" exercise of
the Unit Options. In a cashless exercise, Paramount Capital would receive the
number of shares of Series B Preferred Stock and the number of Class L Warrants
available under the Unit Option LESS the total number available under the Unit
Option multiplied by the exercise price and divided by the market value of the
Unit Option.
Expiration. The Unit Options expire on February 16, 2004.
Class L Warrants. The owner of a Class L Warrant may receive one share
of Common Stock by exercising the Class L Warrant and paying the exercise price
of $1.03 per share of Common Stock.
Price Adjustment. The Unit Options contain provisions to protect
Paramount Capital from the dilution of its interests in Series B Preferred Stock
and Common Stock. These provisions are similar to those which protect owners of
Series B Preferred Stock and owners of warrants from the dilution of their
interests.
Reclassification or Merger. If the Common Stock is reclassified, the
Company sells substantially all of its assets or the Company merges with another
company and is not the continuing entity, the owners of Unit Options will be
entitled to the cash, securities and property they would have received if they
had exercised the Unit Options immediately prior to the reclassification, sale
or merger.
Exercise Limitations. Paramount Capital may not exercise a Unit Option
or Class L Warrant, and may not convert a share of Series B Preferred Stock, if
the exercise or conversion would cause Paramount Capital to own more than 4.9%
of the Company's outstanding Common Stock. Paramount Capital may waive these
restrictions by giving the Company notice at least 61 days in advance.
RESTRICTIONS UNDER THE PURCHASE AGREEMENT
Right to Nominate a Board Member. Aries may nominate a candidate for
the Company's board of directors. The Company's existing board of directors will
support the nominee by creating a new position on the board of directors
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and electing the nominee to fill the vacancy, nominating the nominee for
election by stockholders and using its best efforts to ensure that stockholders
elect the nominee.
Registration Rights. On April 13, 1999, the Company filed with the SEC
a shelf registration statement for the resale of:
o The shares of Common Stock issuable upon the exercise of
Aries' warrants;
o The shares of Common Stock issuable upon the exercise of Class
L Warrants;
o The shares of Common Stock issuable upon conversion of Series
B Preferred Stock;
o Any shares of Common Stock issued to pay dividends on the
Series B Preferred Stock; and
o Any other shares of Common Stock owned by Aries and Paramount
Capital.
Use of Proceeds; Restrictions on Use of Cash. The Purchase Agreement
requires the Company to use the net proceeds for general corporate purposes. The
Company may not use any of the proceeds to repay its debts or repurchase its own
securities. The Company may not make a payment in excess of $25,000 without
Aries' approval. If the registration statement is effective and the Company has
at least $1,000,000 of cash, this limit will be increased to $100,000.
The Company must escrow $1,000,000 in cash from the proceeds of the
Purchase Agreement until the stockholders give the approval requested here and
the registration statement becomes effective.
Limitations on Merger or Sale of Assets. The Company may not merge or
sell substantially all of its assets without Aries' approval.
Limitations on Acquisitions. The Company may not acquire any interest
in any business without Aries' approval. But, the Company may acquire 1% or less
of any class of publicly traded securities.
Limitations on Dividends and Repurchases. The Company may not pay any
dividends on its stock or repurchase any shares of its stock, without Aries'
approval.
Restriction on Securities. Until August 16, 2000, the Company may not,
without Aries' approval, sell any of its securities. However the Company may, so
long as it honors Aries' right of first refusal, sell a maximum of 1,700,000
shares of Common Stock and 500,000 warrants to purchase shares of Common Stock
for a maximum of $1,500,000. Also, the Company may issue shares of Common Stock
upon conversion or exercise of outstanding securities or in an offering with
Paramount Capital acting as placement agent.
Until February 16, 2002, the Company may not, without Aries' approval,
extend the expiration date or lower the exercise price of any options or take
any similar action affecting any convertible securities.
Restrictions on debt. The Company may not incur debt except:
o To Aries and Paramount Capital;
o Under equity lease financings;
o Customary accounts receivable and inventory financing in the
ordinary course of business;
21
<PAGE> 22
o Debt for borrowed money disclosed to Aries at the time of the
Purchase Agreement; and
o Amounts less than $25,000 incurred in the ordinary course of
business (if the registration statement is effective and the
Company has at least $1,000,000 in cash, this limit will be
increased to $100,000).
Other Public Sales and Registrations. Until at least 180 days after the
effective date of the registration statement, the Company will not make a public
offering of its securities except to its employees.
Additional Common Stock Issuable to Purchasers. If the SEC does not
declare the registration statement effective within the time constraints
established in the Purchase Agreement, the Company will immediately issue
warrants to Aries to purchase a number of additional shares of Common Stock and
pay a cash penalty to Aries.
The number of shares of Common Stock available under these additional
warrants would be 1.5% of shares of Common Stock available under Aries' warrants
issued in the First Sale.
The amount of the cash payment would be 1.5% of the total liquidation
preference of Aries' shares of Series B Preferred Stock.
Amendment to Rights Agreement. The Company and Continental Stock
Transfer & Trust Company entered into a Rights Agreement on July 18, 1995.
Generally, the Rights Agreement provides that if a person acquires over 15% of
the outstanding Common Stock, the Company will issue securities which dilute
such person's interests in the Company. The purpose of the Rights Agreement is
to encourage prospective acquirors of the Company to negotiate with the
Company's Board of Directors so that the Company's Board of Directors would have
an opportunity to protect and enhance stockholder value. The Company amended the
Rights Agreement on February 16, 1999 to exempt the issuance of securities
discussed above under the heading "Approval of Issuance of Securities" even
though that issuance may involve more than 15% of the outstanding Common Stock.
SECURITIES ACT EXEMPTIONS AND REGISTRATION
The securities which the Company issued as described above are exempt
from the registration and prospectus delivery requirements of the Securities Act
of 1933 under Section 4(2) thereof. The facts relied upon to make this exemption
available are: (1) there are no more than 3 purchasers and (2) all of the
purchasers made written representations to the Company that they were
"accredited investors" as defined in Rule 501(a) of Regulation D, experienced in
making investments of this type, and buying for their own account and not with a
view to distribution, that no finder, broker, agent financial person or other
intermediary acted on their behalf in connection with their purchases of
securities from the Company other than Paramount.
On April 13, 1999, the Company filed a Registration Statement on Form
S-3 to register the securities issued by the Company as described above under
the Securities Act of 1933. This Form S-3 is not yet effective.
CONSEQUENCES OF STOCKHOLDER DISAPPROVAL
If stockholders do not approve these transactions, the Company will be
required by the Purchase Agreement to redeem the Series B Preferred Stock for
$120 per share. As of the date of this Proxy Statement, there are 30,000 shares
of Series B Preferred Stock outstanding. The total redemption price for these
shares would be $3.6 million, which would deplete the Company's cash. If this
happened, the Company might not be able to continue operations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
22
<PAGE> 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) LIST OF EXHIBITS
3. ARTICLES OF INCORPORATION AND BY-LAWS
Exhibit 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
(incorporated by reference to Exhibit 3.1 to Amendment Number
1 to the Registrant's Annual Report on Form 10-K for the year
ending December 31, 1998 (Commission File No. 0-26520; (the
"1998 Form 10-K/A")).
Exhibit 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 Registrant's Current Report on Form 8-K
dated June 20, 1996; Commission File No. 0-26520).
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
Exhibit 4.1
See Articles FOUR, FIVE, SIX and SEVEN of the Restated
Certificate of Incorporation of the Registrant (see Exhibit
3.1).
Exhibit 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).
Exhibit 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 of the registration
statement on Form 8-A; Commission File No. 0-26520).
Exhibit 4.4
Amendment Number 1 to the Rights Agreement between the
Registrant and Continental Stock Transfer and Trust Company
dated February 16, 1999 (incorporated by reference to Exhibit
4.4 of the 1998 Form 10-K/A).
23
<PAGE> 24
10. MATERIAL CONTRACTS
Exhibit 10.4.33
Sales and Marketing Agreement dated February 1, 1999 between
the Registrant and KOL Bio Medical Instruments, Inc. (filed
pursuant to Rule 24b-2 under which the Registrant has
requested confidential treatment of portions of this Exhibit).
Page 27 in the manually signed original.
11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Exhibit 11.1
Computation of Net Loss Per Share.
Page 47 in the manually signed original.
27. FINANCIAL DATE SCHEDULE
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC
information only).
(B) REPORTS ON FORM 8-K.
No current report on Form 8-K was filed by the Registrant
during the first quarter of fiscal 1999.
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.
NEOPROBE CORPORATION
(the "Registrant")
Dated: May 17, 1999
By: /s/ David C. Bupp
------------------------------------------------------
David C. Bupp,
President and Chief Executive Officer
(duly authorized officer; principal executive officer)
By: /s/ Brent Larson
------------------------------------------------------
Brent Larson
Vice President, Finance and Chief Financial Officer
(principal financial and accounting officer)
24
<PAGE> 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
NEOPROBE CORPORATION
-------------------------
FORM 10-Q QUARTERLY REPORT
FOR THE FISCAL QUARTER ENDED:
MARCH 31, 1999
-------------------------
EXHIBITS
-------------------------
<PAGE> 26
INDEX
Exhibit 4.1
See Articles FOUR, FIVE, SIX and SEVEN of the Restated Certificate of
Incorporation of the Registrant (see Exhibit 3.1).
Exhibit 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).
Exhibit 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 of the registration statement on Form 8-A; Commission File No. 0-26520).
Exhibit 4.4
Amendment Number 1 to the Rights Agreement between the Registrant and
Contintental Stock Transfer and Trust Company dated February 16, 1999
(incorporated by reference to Exhibit 4.4 of the 1998 Form 10-K/A).
Exhibit 10.4.33
Sales and Marketing Agreement dated February 1, 1999 between the Registrant and
KOL Bio Medical Instruments, Inc. (filed pursuant to Rule 24b-2 under which the
Registrant has requested confidential treatment of portions of this Exhibit).
Exhibit 11.1
Computation of Net Loss Per Share.
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC information only).
<PAGE> 1
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
EXHIBIT 10.4.33
SALES AND MARKETING AGREEMENT
BETWEEN
NEOPROBE CORPORATION
AND
KOL BIO-MEDICAL INSTRUMENTS, INC.
JANUARY 26, 1999
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 OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I. DEFINITIONS...........................................................................................1
1.01 Affiliate..........................................................................................1
1.02 Effective Date.....................................................................................1
1.03 FDA and Act........................................................................................1
1.04 GMP................................................................................................1
1.05 Gross Sales........................................................................................1
1.06 Net Sales..........................................................................................2
1.07 Person.............................................................................................2
1.08 Product............................................................................................2
1.09 Quarter............................................................................................2
1.10 Schedules..........................................................................................2
1.11 Subagent...........................................................................................2
1.12 Territory..........................................................................................2
1.13 Year...............................................................................................2
ARTICLE II. APPOINTMENT..........................................................................................2
2.01 Appointment........................................................................................2
2.02 Right to Appoint Subagents.........................................................................2
2.03 Responsibility for Subagents Performance...........................................................3
2.04 Initial Purchase of Demonstration Units............................................................3
2.05 Purchase of Additional Demonstration Units.........................................................3
2.06 Demonstration Unit Turn Rate.......................................................................3
2.07 Quota..............................................................................................3
2.08 Failure to Meet Quota..............................................................................4
2.09 Adjustment of Quota Due to Backorder...............................................................4
2.10 Adjustment of Quota Due to Competition.............................................................4
2.11 Addition of New Products...........................................................................4
ARTICLE III. KOL COMPENSATION.....................................................................................4
3.01 Commission.........................................................................................4
3.02 Milestone Payments.................................................................................4
3.03 Demonstration Unit Sales...........................................................................4
ARTICLE IV. AUDIT OF BOOKS AND RECORDS............................................................................4
4.01 Audit of Neoprobe's Records........................................................................4
4.02 Discrepancy in Payments............................................................................5
4.03 Penalty for Underpayment...........................................................................5
4.04 Dispute Relating to Audit..........................................................................5
</TABLE>
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.
i
<PAGE> 3
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V. SALES AND MARKETING ACTIVITIES........................................................................5
5.01 Kol Sales Force Size..............................................................................5
5.02 Kol Marketing Responsibilities.....................................................................5
5.03 Final Authority Over Key Marketing Decisions.......................................................6
5.04 List Price.........................................................................................6
5.05 Cost of Advertising and Promotion..................................................................6
5.06 Breast Model and Check Source.....................................................................6
5.07 Support of Sales and Marketing Personnel...........................................................6
ARTICLE VI. TERM AND TERMINATION.................................................................................6
6.01 Term of Agreement..................................................................................6
6.02 Termination For Material Breach....................................................................6
6.03 Termination for Insolvency.........................................................................7
6.04 Termination for Failure to Meet Quota..............................................................7
6.05 No Cause Termination by Neoprobe...................................................................7
6.06 No Cause Termination by Kol........................................................................8
6.07 Termination Fee....................................................................................8
6.08 Non-competition After Termination..................................................................8
6.09 Termination Does Not Affect Accrued Rights.........................................................8
6.10 Obligations Surviving Termination..................................................................8
6.11 Termination Upon Change of Control of Kol..........................................................8
6.12 Termination Upon Change of Control of Neoprobe.....................................................8
6.13 Buy-Back of Demonstration Units....................................................................9
ARTICLE VII. REGULATORY ACTIVITIES AND RESPONSIBILITY.............................................................9
7.01 Regulatory Activities..............................................................................9
7.02 Adverse Experiences and Product Complaints.........................................................9
7.03 Promotional Materials..............................................................................9
ARTICLE VIII. REPRESENTATIONS AND WARRANTIES.....................................................................9
8.01 Best Efforts.......................................................................................9
8.02 Promotion Within Product Labeling..................................................................9
8.03 Competing Products.................................................................................9
8.04 Product Manufactured Under GMP....................................................................10
8.05 Product Warranty..................................................................................10
8.06 General Warranty..................................................................................10
ARTICLE IX. INDEMNIFICATION AND INSURANCE........................................................................10
9.01 Neoprobe Indemnity................................................................................10
9.02 Kol Indemnity.....................................................................................10
</TABLE>
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.
ii
<PAGE> 4
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
<TABLE>
<CAPTION>
<S> <C>
9.03 Neoprobe Insurance................................................................................11
9.04 Kol Insurance.....................................................................................11
ARTICLE X. CONFIDENTIALITY......................................................................................11
10.01 Confidential Information.........................................................................11
10.02 Period of Confidentiality........................................................................11
10.03 Right to Use Confidential Information............................................................12
ARTICLE XI. PUBLIC ANNOUNCEMENTS................................................................................12
11.01 Public Announcement..............................................................................12
ARTICLE XII. MISCELLANEOUS......................................................................................12
12.01 Force Majeure....................................................................................12
12.02 Taxes............................................................................................12
12.03 Notices..........................................................................................12
12.04 Agreement Subject to Applicable Law..............................................................13
12.05 Governing Law....................................................................................13
12.06 Other Instruments................................................................................13
12.07 Legal Construction...............................................................................13
12.08 Entire Agreement, Modification, Consents and Waivers.............................................13
12.09 Section Headings; Construction...................................................................14
12.10 Execution Counterparts...........................................................................14
12.11 Consents and Approval............................................................................14
12.12 Arbitration......................................................................................14
ARTICLE XIII. RELATIONSHIP OF THE PARTIES........................................................................14
13.01 Relationship of the Parties.......................................................................14
ARTICLE XIV. BINDING EFFECT, ASSIGNMENT.........................................................................15
14.01 Binding Effect, Assignment.......................................................................15
</TABLE>
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.
iii
<PAGE> 5
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
SALES AND MARKETING AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT is made as of this 1st day of February, 1999, by and
between Neoprobe Corporation, a Delaware corporation with principal offices at
425 Metro Place North, Suite 300, Dublin, Ohio 43017-1367 (hereinafter referred
to as "Neoprobe"), and Kol Bio-Medical Instruments, Inc., a Virginia
Corporation, with offices located at 13901 Willard Road, Chantilly, Virginia
20151 (hereinafter referred to as "Kol").
WHEREAS, Neoprobe has developed and commercialized certain hand-held,
intraoperative gamma-radiation detection device products useful for
intraoperative lymphatic mapping and for gamma-guided surgery;
WHEREAS, Kol is a medical product sales and marketing organization and
distributor with expertise in medical product sales, marketing and distribution
in the United States;
WHEREAS, Neoprobe desires to appoint Kol as Neoprobe's exclusive sales
and marketing agent for marketing of its device products in the United States;
and
WHEREAS, Kol is willing to be the exclusive sales and marketing agent
for Neoprobe's device products in the United States;
NOW, THEREFORE, in consideration of these premises and the mutual
covenants contained herein, the parties agree as follows:
ARTICLE I. 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
forty percent (40%) of the equity capital having the right to vote for election
of directors in the case of a corporation and more than forty percent (40%) of
the beneficial interest in the case of a business entity other than a
corporation.
1.02 Effective Date. The "Effective Date" of this Agreement is the date
first written herein above, provided that Kol meets its sales force training
obligation set forth in Section 5.01 herein. In the event, Kol fails to have its
minimum sales force trained by February 28, 1999, the parties will mutually
agree to an adjusted Effective Date.
1.03 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 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
<PAGE> 6
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
1.04 GMP. As used herein the term "GMP" means the applicable current
good manufacturing practices promulgated from time to time by the FDA in
accordance with the Act, including those set forth in 21 CRF, Parts 808, 812,
and 820.
1.05 Gross Sales. As used herein "Gross Sales" shall mean the actual
invoice price at which the Product is sold by Neoprobe to the customer in the
Territory.
1.06 Net Sales. As used herein the term "Net Sales" shall mean Gross
Sales less the following: trade, cash and quantity discounts to the extent such
discounts are not reflected in the actual invoice price, returns, shipping and
handling, sales of demonstration units, and sales of Product by Neoprobe to its
Affiliates or third parties which Product is not for resale in the Territory.
1.07 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.
1.08 Product. As used herein the term "Product" or "Products" shall
mean hand-held, intraoperative gamma-radiation detection instruments and
accessories therefore listed in Schedule 1.08 attached hereto, as such Schedule
1.08 may be amended from time to time by mutual agreement of the Parties.
1.09 Quarter. As used herein, the term "Quarter" shall mean four (4)
equal three (3) month periods in a Year, each such period beginning on January
1, April 1, July 1, and October 1 of a Year; provided, however, that Q1 of Year
1 shall run from the Effective Date and end on March 31, 1999.
1.10 Schedules. The Schedules to this Agreement are listed below and
are an integral part of this Agreement and are incorporated herein:
<TABLE>
<CAPTION>
=========================================================================
SCHEDULE # DESCRIPTION
-------------------------------------------------------------------------
<S> <C>
1.08 List of Products
-------------------------------------------------------------------------
2.06 Example of Warranty Calculation
-------------------------------------------------------------------------
3.01 Commission Rate
-------------------------------------------------------------------------
3.02 Milestone Payments
-------------------------------------------------------------------------
6.07 Example of Termination Fee Calculation
=========================================================================
</TABLE>
1.11 Subagent. As used herein, the term "Subagent" shall mean one or
more Persons designated by Kol, subject to the reasonable approval of Neoprobe,
who shall have the right, pursuant to an agreement with Kol, to sell, market and
promote Product in the Territory.
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.
2
<PAGE> 7
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
1.12 Territory. As used herein the term "Territory" shall mean the ***.
1.13 Year. As used herein, the term "Year" shall refer to a calendar
year and except for Year 1 of the Agreement which shall run from the Effective
Date and end on December 31, 1999, shall mean the twelve (12) month period
commencing on January 1 and ending on December 31.
ARTICLE II. APPOINTMENT
2.01 Appointment. Neoprobe hereby appoints Kol, and Kol hereby accepts
such appointment, as the exclusive agent for the promotion, marketing and sale
of Product in the Territory. Except as the parties may otherwise agree in
writing, Kol shall have the sole and exclusive right to promote, market and sell
the Product and to solicit and accept orders from purchasers located in the
Territory.
2.02 Right to Appoint Subagents. Kol shall have the right to appoint
Subagents to assist it in carrying out the sales and marketing activities
delegated to it by Neoprobe pursuant to the appointment granted in Section 2.01
herein; provided, however, that Neoprobe shall have the right to approve the
appointment of such Subagent, such approval not to be unreasonably withheld. Kol
shall obtain the written agreement of any Subagent appointed by it pursuant to
this Section 2.02, that such Subagent agrees to be bound by the terms of
Sections 6.08, 7.02,8.01,8.02,8.03, 9.02, 9.04, and Articles X and XI; provided,
however, that the provisions of Section 6.08 shall only apply to the "Territory"
of the Subagent as that term is defined in the Subagents agreement with Kol.
2.03 Responsibility for Subagents Performance. Kol shall be responsible
for the performance of its Subagents hereunder and the actions of the Subagents
shall be considered actions of Kol.
2.04 Initial Purchase of Demonstration Units. Provided that an initial
purchase order for *** units is placed by Kol no later than December 30, 1998,
Neoprobe agrees to sell Kol *** NEO2000(TM) Systems for use as demonstration
units as follows: *** Systems at *** each; and *** Systems at *** each. The
purchase order for the *** units shall be placed by Kol within thirty (30) days
after the Effective Date. Payment for such NEO2000(TM) Systems shall be made by
Kol to Neoprobe in *** equal *** installments beginning on March 1, 1999.
2.05 Purchase of Additional Demonstration Units. The cost of any
NEO2000(TM) Systems demonstration units purchased in addition to the initial
purchase described in Section 2.04 above shall be *** per NEO2000(TM) System.
Kol may also purchase the Neoprobe 1500(R) System for use as a demonstration
unit at a cost of *** per system. Payment terms for demonstration units
purchased pursuant to this Section 2.05 shall be Net *** days.
2.06 Demonstration Unit Turn Rate. Demonstration unit turn rate shall
be at no more than *** units per sales representative per Year. Kol shall have
the right to return demonstration device control units to Neoprobe for
refurbishment. If Kol returns a demonstration unit to Neoprobe for refurbishment
there will be a refurbishment charge of *** of
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.
3
<PAGE> 8
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
the initial cost of the system. For example, the refurbishment cost for the
NEO2000 control unit purchased pursuant to Section 2.05 will be *** and for the
Neoprobe 1500 demonstration control unit ***. Unless otherwise agreed to by
Neoprobe, Kol agrees that no refurbished NEO2000 demonstration units shall be
sold in the Territory for less than ***. Kol further agrees that neither it nor
its Subagents will sell any demonstration unit outside the Territory unless
agreed to by Neoprobe. Neoprobe agrees to provide a *** warranty on all
refurbished demo unit control units which shall be in addition to any original
warranty remaining on the demonstration unit; provided, however, that in no
event shall the total of the *** warranty plus the period remaining on the
original warranty exceed the duration of the original warranty. Schedule 2.06
provides two examples of the calculation of the warranty period for a
refurbished demo unit.
2.07 Quota. In order to maintain this Agreement in force and effect,
Net Sales of Product must reach at least *** of the following annual Net Sales
target:
<TABLE>
<CAPTION>
==============================================
YEAR NET SALES IN
***
----------------------------------------------
<S> <C>
1 ***
----------------------------------------------
2 ***
----------------------------------------------
3 ***
----------------------------------------------
4 ***
==============================================
</TABLE>
The annual Net Sales quota is expected to be achieved proportionally over each
Quarter of a Year; Net Sales in a Quarter of a Year shall not be less than ***
of the total quota for the Year. Distribution of Product sales over each Quarter
of a Year shall be agreed to by the parties at least sixty (60) days prior to
the end of the current Year for the subsequent Year; provided however that
Product Sales for each Quarter of Year 1 of the Agreement shall be agreed to by
the parties within thirty (30) days after the Effective Date.
2.08 Failure to Meet Quota. Beginning on July 1, 1999, if Kol fails to
achieve the pro rata share of the annual quota specified by Section 2.07 ***,
Neoprobe shall have the right to terminate this Agreement pursuant to the terms
of Section 6.04 herein.
2.09 Adjustment of Quota Due to Backorder. In the event that any of the
Products go on backorder for a period of sixty (60) days or more, Neoprobe
agrees to hold good faith discussions with Kol regarding the impact of such
backorder on the ability of Kol to make the quota described in Section 2.07 and
to reasonably adjust such quota to reflect the backorder. At the end of a Year
any purchase orders for Product on backorder received by Neoprobe shall be
counted toward the quota specified by Section 2.07.
2.10 Adjustment of Quota Due to Competition. If the average selling
price of the Product is significantly depressed because of competition in the
industry, Neoprobe agrees to hold good faith discussions with Kol on the impact
of average selling price erosion on Kol's ability to meet the quota specified by
Section 2.07 and to reasonably adjust the quota to reflect the prevailing market
conditions.
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.
4
<PAGE> 9
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
2.11 Addition of New Products. Any new gamma radiation devices or
accessories for such devices or any improvements thereto developed or acquired
by Neoprobe during the term of this Agreement (hereinafter "New Products") shall
be offered to Kol for addition to Schedule 1.08. In the event the parties agree
to add such New Product to Schedule 1.08 it shall become a Product covered by
this Agreement except that the parties shall negotiate in good faith the
specific business terms, for example, cost of demonstration units, commission
rate, and the like applicable to such Product taking into account the nature of
the product and the impact of comparable products in the market.
ARTICLE III. KOL COMPENSATION
3.01 Commission. Neoprobe shall pay Kol a commission on Net Sales of
Product as set forth in Schedule 3.01 attached hereto. Payment of the commission
shall be made within *** days of the end of each *** during the term of this
Agreement; provided however, that from the Effective Date until Q3 1999,
Neoprobe shall have *** business days to make the applicable commission payment.
3.02 Milestone Payments. In addition to the commission payments
described in Section 3.01, Neoprobe shall pay Kol milestone payments based on
achievement of a specified level of Net sales as set forth in Schedule 3.02
attached hereto. Payment of the milestones shall be made by Neoprobe to Kol
within *** days after such milestone is reached.
3.03 Demonstration Unit Sales. Sales of demonstration units purchased
by Kol pursuant to Section 2.04 and Section 2.05 shall be counted in the Net
Sales number for purposes of determining any milestone payment due Kol pursuant
to Section 3.02.
ARTICLE IV. AUDIT OF BOOKS AND RECORDS
4.01 Audit of Neoprobe's Records Neoprobe shall keep, in accordance
with generally accepted accounting practices, full, true and accurate records
containing sufficient detail as may be necessary for Kol to properly ascertain
and verify that any sales commission paid to it by Neoprobe pursuant to Section
3.01, or milestone payment made pursuant to Section 3.02 and/or Termination fee
paid to it pursuant Section 6.07 are true and correct. Upon Kol's request,
Neoprobe shall permit an independent certified accountant selected by Kol
(except one to whom Neoprobe has some reasonable objection) to inspect, once
each Year during ordinary business hours, such books and records of Neoprobe
covering a period not more than the prior four (4) Quarters as may be necessary
to verify the correctness of the payments described herein.
4.02 Discrepancy in Payments. Unless otherwise agreed to by the
parties, if as a result of the audit performed pursuant to Section 4.01, the
independent auditor determines Neoprobe has underpaid any payment due Kol,
Neoprobe shall, no later than five (5) business days after receiving notice of
such underpayment, remit to Kol the amount of the underpayment. Unless otherwise
agreed to by the parties, if such audit reveals an overpayment to Kol, such
overpayment shall be refunded to Neoprobe within five (5) business days after
Kol becomes aware of such overpayment.
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.
5
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
4.03 Penalty for Underpayment. If as a result of an audit performed
pursuant to Section 4.01, it is determined that Neoprobe has underpaid any
payment due Kol by more than ***, in addition to remitting the amount of the
underpayment as described in Section 4.02, Neoprobe shall pay Kol interest on
such amount at the rate per annum of *** (interest changing as and when the ***
changes); such interest being payable on demand together with all costs incurred
by Kol to collect the amounts due hereunder, including, but not limited to,
reasonable attorneys fees and disbursements. As used herein, the term "prime"
refers to the prime rate of interest per annum announced, from time to time, by
major money center banks in the United States and as published daily in The Wall
Street Journal; provided, however, that if The Wall Street Journal should ever
cease, for any reason, to publish such rate on a daily basis, then the Prime
Rate shall be at the rate of interest designated and in effect from time to
time, by Citibank, N.A., in New York, New York as its Prime Rate.
4.04 Dispute Relating to Audit. In the event an audit conducted
pursuant to Section 4.01 finds an underpayment by Neoprobe and if Neoprobe
disagrees with the results of such audit and further in the event the parties
can not resolve such disagreement, the parties shall mutually chose an
independent accountant acceptable to both to conduct a second audit. The parties
agree to be bound by the results of the second independent audit. The cost of an
audit conducted pursuant to this Section 4.04 shall be borne by Kol if the
independent accountant finds no underpayment and by Neoprobe if an underpayment
is found.
ARTICLE V. SALES AND MARKETING ACTIVITIES
5.01 Kol Sales Force Size. Kol shall maintain an active sales force
group, including Subagents at a level of *** sales representatives for each
Year of the Agreement; such group not to include Neoprobe's clinical
specialists. Kol agrees to have its minimum sales force trained and active by
March 1, 1999.
5.02 Kol Marketing Responsibilities. Kol shall be responsible for
providing a full array of Product sales and marketing support, including but not
limited to the following sales and marketing activities:
a) direct selling efforts to customers, including surgeons,
other physicians, nurses and hospital administrators;
b) participation in relevant professional trade shows,
symposia and seminars;
c) training (including surgical observations) and in-servicing
of customers; and
d) local and regional training of customers.
Beginning in the 3rd Quarter of Year 1, within fifteen (15) days of the end of
each Quarter of a Year, Kol agrees to provide Neoprobe with a written sales and
marketing report summarizing Kol's marketing activities over the previous
Quarter. Kol agrees to provide verbal marketing reports on at least a monthly
basis during each month of the term of this Agreement.
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.
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
5.03 Final Authority Over Key Marketing Decisions. Subject to the terms
of this Agreement, Neoprobe shall have final decision making authority over all
key decisions relative to sales and marketing of the Product such as pricing,
promotional strategy and the like; provided however, that Neoprobe shall consult
with Kol on such key decisions prior to making a final decision and shall
reasonably consider Kol's input and advice.
5.04 List Price. Neoprobe shall provide Kol with a copy of the current
List Price and "Floor Price" for all Products listed in Schedule 1.08 on or
before the Effective Date of this Agreement and shall promptly notify Kol of any
changes made to the "List Price" and "Floor Price" for a Product. As used
herein, the term "List Price" means the usual and published price at which
Neoprobe sells a particular Product to the market. As used in this Section 5.04,
the term "Floor Price" shall mean the lowest price Kol can offer a customer
below the List Price. Kol shall have the discretion to quote Product to
customers in the range of list price to "Floor Price". Kol agrees to obtain
Neoprobe's prior consent before it quotes a Product price to a customer below
the Floor Price.
5.05 Cost of Advertising and Promotion. *** shall be responsible for
advertising and promotion costs for the Product. Neoprobe shall provide Kol ***
with presentation promotional material and video promotional material to be used
to promote the Product.
5.06 Breast Model and Check Source. Kol shall pay Neoprobe *** for
breast models and for check sources.
5.07 Support of Sales and Marketing Personnel. *** is responsible for
all costs incurred in supporting its respective sales and marketing personnel in
connection with activities related to the sales, marketing and promotion of
Product; such as for example, travel, bonus program, car, and the like.
ARTICLE VI. TERM AND TERMINATION
6.01 Term of Agreement. This Agreement shall be effective as of the
date first written hereinabove and shall remain in effect until terminated
pursuant to any of the provisions of this Article VI.
6.02 Termination For Material Breach. Subject to the provisions of
Section 6.04 herein, either party may terminate this Agreement for a material
breach or default if such material breach or default is not cured within thirty
(30) days after the giving of written notice by the party specifying such breach
or default.
(a) The following specific acts are deemed to be a material
breach of this Agreement on the part of Kol within the
meaning of this Section 6.02:
i) breach of the warranty to promote the Product
within the label pursuant to Section 8.02;
ii) breach of the warranty not to promote a competing
product as set forth in Section 8.03; and
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.
7
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
iii) failure to maintain the minimum sales force size
specified by Section 5.01.
(b) The following specific acts are deemed to be a material
breach of the Agreement on the part of Neoprobe within the
meaning of this Section 6.02:
i) failure to pay the commission pursuant to Section
3.01;
ii) failure to make the milestone payment specified
by Section 3.02; or
iii) breach of any warranties or representations
regarding the Product made by Neoprobe under this Agreement.
(c) In the event Kol terminates this Agreement pursuant to
Section 6.02(b), Neoprobe shall pay Kol a "Termination
Fee" as defined in Section 6.07 herein. No Termination Fee
shall be due to Kol in the event of termination of this
Agreement by Neoprobe pursuant to Section 6.02(a).
6.03 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. In the event this Agreement is
terminated by either party pursuant to this Section 6.03, Neoprobe shall pay Kol
a "Termination Fee" as defined in Section 6.07 herein.
6.04 Termination for Failure to Meet Quota. Beginning July 1, 1999, if
Kol fails to achieve at least *** of the pro rata share of the annual quota
specified by Section 2.07 for ***, Neoprobe shall have the right to terminate
this Agreement upon *** notice to Kol. Kol shall have the *** notice period plus
an additional *** cure period to achieve its minimum Net Sales target for the
then current Quarter of the current Year. If Kol achieves its pro rata minimum
Net Sales target, the Marketing Agreement shall remain in full force and effect.
Unless otherwise agreed to by Neoprobe, if Kol fails to achieve the minimum
target, this Agreement shall terminate upon *** notice to Kol. No Termination
Fee shall be due to Kol in the event of termination of this Agreement by
Neoprobe pursuant to this Section 6.04.
6.05 No Cause Termination by Neoprobe. Neoprobe shall have the right to
terminate this Agreement without cause upon *** prior notice to Kol. During the
*** notice period, Kol shall use reasonable commercial efforts to assist in the
transition of the Product marketing back to Neoprobe or to Neoprobe's designee
and to introduce the new marketing/sales force to the
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.
8
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
customer base for the Product in the Territory. At the end of such *** period
the Agreement will automatically terminate (the "Effective Date of Termination")
and Neoprobe shall pay Kol a "Termination Fee" as defined in Section 6.07
herein.
6.06 No Cause Termination by Kol. Kol shall have the right to terminate
this Agreement without cause upon *** prior notice to Neoprobe. During the last
*** of the notice period, Kol shall use reasonable commercial efforts to assist
in the transition of the Product marketing back to Neoprobe or to Neoprobe's
designee and to introduce the new marketing/sales force to the customer base for
the Product in the Territory. During the last *** of the notice period, the
provisions of Section 2.07 relating to quota shall not apply. At the end of the
notice period the Agreement shall automatically terminate (the "Effective Date
of Termination").
6.07 Termination Fee. As used in this Article VI, the term "Termination
Fee" shall mean an amount equal to "Multiplier" times the "Termination Amount."
As used herein, the term "Multiplier" means a number equal to ***. The
"Termination Amount" shall be equal to *** of Neoprobe's average monthly Net
Sales for the *** period preceding the Effective Date of Termination. Schedule
6.07 attached hereto sets forth an example of the calculation described in this
Section 6.07. The Termination Fee shall be paid to Kol in *** equal installments
paid at *** intervals. The first such payment to be made within *** days after
the Effective Date of Termination. Interest on the unpaid balance of the
Termination Fee shall accrue at a rate of *** per annum and shall be paid
currently with each installment.
6.08 Non-competition After Termination. Provided that Kol is receiving
the Termination Fee as specified by Section 6.07, Kol agrees that it will not
distribute, market promote or sell a product competitive with the Products
covered by this Agreement for a period of twelve (12) months following the
Effective date of Termination.
6.09 Termination Does Not Affect Accrued Rights. Termination or
expiration of this Agreement, pursuant to any of the provisions of this Article
VI, shall not affect any rights or obligations which may have accrued to either
party prior to the effective date of such termination or expiration.
6.10 Obligations Surviving Termination. The obligations of
confidentiality as provided in Article X and of indemnification as provided in
Article IX shall survive the expiration or termination of this Agreement.
6.11 Termination Upon Change of Control of Kol. Neoprobe may terminate
this Agreement following a "Change of Control" with respect to Kol if (a)
immediately following such Change of Control there is a material adverse change
in the capability of Kol to fulfill its obligations under this Agreement from
that which existed immediately prior to the Change of Control, or (b) the Person
acquiring Kol is a competitor of Neoprobe. As used in this Section 6.11 the term
"Change of Control" with respect to Kol shall mean and shall be deemed to have
occurred if: (i) the present ownership of Kol either directly or indirectly
through one or more Affiliates shall not at any time "control" (as defined in
Section 1.01) or have the power to control the actions, management or policies
of KOL, or (ii) all or substantially all of the assets of Kol
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.
9
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
shall be sold, transferred or otherwise conveyed in any transaction or series of
related transactions (which shall include, without limitation, a merger or
consolidation in which Kol is not the surviving entity) to any Person who is not
controlled by Kol or an Affiliate. The term "competitor", as used in this
Section 6.11, means any Person whose product lines could reasonably be expected
to diminish the sales of the Product.
6.12 Termination Upon Change of Control of Neoprobe. Kol may terminate
this Agreement following a "Change of Control" with respect to Neoprobe if (a)
immediately following such Change of Control there is a material adverse change
in the capability of Neoprobe to fulfill its obligations under this Agreement
from that which existed immediately prior to the Change of Control, or (b) this
Agreement is not assigned or assumed by the Person acquiring Neoprobe. As used
in this Section 6.11 the term "Change of Control" with respect to Neoprobe shall
mean and shall be deemed to have occurred if: (i) the present ownership of
Neoprobe either directly or indirectly through one or more Affiliates shall not
at any time "control" (as defined in Section 1.01) or have the power to control
the actions, management or policies of Neoprobe, or (ii) all or substantially
all of the assets of Neoprobe shall be sold, transferred or otherwise conveyed
in any transaction or series of related transactions (which shall include,
without limitation, a merger or consolidation in which Neoprobe is not the
surviving entity) to any Person who is not controlled by Neoprobe or an
Affiliate. In the event of a termination pursuant to this Section 6.12, Neoprobe
shall pay Kol a "Termination Fee" as defined in Section 6.07 herein.
6.13 Buy-Back of Demonstration Units. In the event this Agreement is
terminated by Neoprobe pursuant to Section 6.04 or Section 6.05 or by Kol
pursuant to Section 6.12 and if requested by Kol, Neoprobe shall be obligated to
promptly repurchase any demonstration unit sold to Kol during the *** period
preceding the date of termination; provided, however, that Neoprobe shall only
be obligated to repurchase a demonstration unit that is in reasonable condition
and that has not been subjected to excessive wear and tear. The repurchase price
shall be the invoice price of the unit less ***.
ARTICLE VII. REGULATORY ACTIVITIES AND RESPONSIBILITY
7.01 Regulatory Activities. Neoprobe shall have sole responsibility for
all communications to the FDA relating to the Product.
7.02 Adverse Experiences and Product Complaints. Each party shall
notify the other within three (3) business days of any serious and
life-threatening adverse experiences related to the Product of which it becomes
aware; Kol shall notify Neoprobe within ten (10) business days of any other
adverse experiences related to the Product of which it becomes aware. Neoprobe
shall provide Kol with a copy of the quarterly adverse experience report for the
Product which Neoprobe is required by the Act to submit to the FDA. Kol shall
notify Neoprobe of any Product complaint which it receives within thirty (30)
days of receipt of such complaint. Neoprobe shall notify Kol of any serious
complaints relating to the Product within thirty (30) days of becoming aware of
such complaint.
7.03 Promotional Materials. All materials used by Kol to promote the
Product shall be approved by Neoprobe prior to use by Kol.
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.
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
ARTICLE VIII. REPRESENTATIONS AND WARRANTIES
8.01 Best Efforts. Kol represents and warrants that it shall use its
best efforts to promote, market and sell Product in the Territory in accordance
with the provisions set forth in this Agreement.
8.02 Promotion Within Product Labeling. Kol represents and warrants
that all of its advertising and promotional activities relating to the Product
shall be consistent with the Neoprobe provided or approved labeling, as such
labeling may be amended from time to time.
8.03 Competing Products. Unless otherwise agreed to by Neoprobe, during
the term of this Agreement, Kol represents and warrants that it will not
distribute, market, promote or sell any product that is directly competitive
with the Products marketed by Kol pursuant to this Agreement.
8.04 Product Manufactured Under GMP. Neoprobe represents and warrants
that all Product covered by the terms of this Agreement shall be manufactured in
accordance with the approved specifications for each such Product and cGMPs.
8.05 Product Warranty. Neoprobe represents and warrants that all
Product sold pursuant to this Agreement shall be free from defects in materials
and workmanship and shall be of merchantable quality and shall be produced in
compliance with all applicable federal, state or local laws and regulations.
8.06 General Warranty. Each party hereby represents and warrants that:
a) it has full power and authority to execute and
deliver this Agreement and to consummate the
transactions contemplated herein;
b) this Agreement and the provisions hereof constitute
the valid and legally binding obligations of each
party and do not require the consent, approval or
authorization of any Person, public or governmental
authority or other entity;
c) the execution and delivery of this Agreement by each
party, and the performance of a party's obligations
hereunder, are not in violation or breach of, and
will not conflict with or constitute a default under
the Articles of Incorporation or Bylaws of either
party, or any material agreement, contract,
commitment or obligation to which either Neoprobe or
Kol is a Party or by which either of it is bound; and
d) will not conflict with or violate any applicable law,
rule, regulation, judgment, order or decree of any
governmental agency or court having jurisdiction over
either Party or its assets properties.
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.
11
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
ARTICLE IX. INDEMNIFICATION AND INSURANCE
9.01 Neoprobe Indemnity. Neoprobe agrees to indemnify, protect, and
defend Kol, its Affiliates and Subagents (collectively referred to as "Kol" in
this Section 9.01) and hold Kol 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, which (i)
arise as the result of Neoprobe's breach of this Agreement or of any warranty or
representation made to Kol under this Agreement; or, (ii) which result from any
claim made against Kol in connection with Neoprobe's sale of defective Product;
or (iii) which result from the negligent acts or willful malfeasance on the part
of Neoprobe or Neoprobe's employees or agents in connection with Neoprobe's
registration or other activities or actions in connection with the Product; (iv)
which result from Kol's use of promotional materials, provided by Neoprobe, so
long as Kol's use is in accordance with the Agreement; or, (v) arise out of any
tort claim, worker's compensation claims or other employment related claims of
any agents or employees of Neoprobe; or (vi) which result from any claim of
patent or trademark infringement made against Kol by a third party which arises
as a consequence of Kol's promotion of the Product. Kol shall, upon the filing
of any such legal claim or lawsuit against it, promptly notify Neoprobe, in
writing, of any such claim and Neoprobe shall, at its expense, with attorneys
reasonably acceptable to Kol, handle, defend and control such claim or lawsuit.
9.02 Kol Indemnity. Kol agrees to indemnify, protect, and defend
Neoprobe and hold Neoprobe 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, which (i)
arise out of Kol's breach of this Agreement or of any warranty or representation
made to Neoprobe under this Agreement; or, (ii) result from the negligent acts
or willful malfeasance on the part of Kol or Kol's employees or agents, in
promoting the Product in a manner inconsistent with the Product's labeling; or,
(iii) arise out of any tort claim, worker's compensation claims or other
employment related claims of any agents or employees of Kol. Neoprobe shall,
upon the filing of any such legal claim or lawsuit against Neoprobe, shall
promptly notify Kol, in writing of any such claim and Kol shall, at its expense,
with attorneys reasonably acceptable to Neoprobe, handle, defend, and control
such claim or lawsuit.
9.03 Neoprobe Insurance. Neoprobe shall obtain and/or keep in force
during the term of this Agreement, including any renewals thereof, policies of
insurance covering the Product and general comprehensive liability covering the
sale and distribution of the Product, in the Territory in an amount of at least
*** with no more than *** deductible per claim for all products liability claims
involving the Products. Such insurance shall provide that it shall not be
canceled by the insurer without thirty (30) days' prior written notice thereof
to KOL. If requested by Kol, Neoprobe will supply Kol with a certificate of
insurance evidencing that such insurance is in force.
9.04 Kol Insurance. Kol shall obtain and/or keep in force during the
term of this Agreement, including any renewals thereof, general comprehensive
liability insurance. Such insurance shall provide that it shall not be canceled
by the insurer without thirty (30) days' prior written notice thereof to
Neoprobe. If requested by Neoprobe, Kol shall supply Neoprobe with a certificate
of insurance evidencing that such insurance is in force.
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.
12
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
ARTICLE X. CONFIDENTIALITY
10.01 Confidential Information. Except for the proper exercise of any
rights granted or reserved under other provisions of this Agreement, each party
agrees that it will take such precautions as it normally takes with its own
confidential or proprietary information to keep confidential and not to publish
or otherwise disclose to a third party except as permitted or anticipated
herein, any information of a confidential or proprietary nature furnished by the
other party to it in connection with this Agreement, including, without
limitation, technology, marketing strategy, specifications, product information,
sales force information, sales data, marketing plans, trade secrets, call lists,
business information, and adverse reaction reports (together called
"Confidential Information") without the prior written consent of the other
party, except to the extent that such Confidential Information is required to be
disclosed for the purpose of complying with law or government regulations.
10.02 Period of Confidentiality. The obligation of confidentiality
hereunder shall remain in effect for two (2) years from the expiration or
termination of this Agreement; provided, however, that nothing in this Article X
shall prevent disclosure or use by the receiving party of any part of the
Confidential Information of the other party which:
a) was known or used by the receiving party prior to
disclosure, as evidenced by its written records made prior
to the time of disclosure hereunder;
b) either before or after the time of disclosure becomes known
to the public other than by an unauthorized act or omission
of the receiving party;
c) is lawfully disclosed to the receiving party by a third
party having the right to disclose said Confidential
Information; or
d) is developed by the receiving party independently from the
Confidential Information provided by the other party hereto
as evidenced by the receiving party's written records.
10.03 Right to Use Confidential Information. Notwithstanding the
restrictions set forth in this Article X, each party shall be entitled at all
times to use all Confidential Information provided by the other party in order
to perform its obligations or exercise its rights under this Agreement.
ARTICLE XI. PUBLIC ANNOUNCEMENTS
11.01 Public Announcement. No press releases or other public
announcements concerning Kol's appointment hereunder or concerning this
Agreement shall be made without the prior mutual consent of the parties.
11.02 Specific Terms Not To Be Disclosed. Neither Neoprobe nor Kol
shall publicly disclose the specific terms of this Agreement other than what may
be required by the Securities Exchange Commission (SEC). Except as required by
SEC filings, the transactions
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.
13
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
contemplated hereby or performance hereunder shall not be disclosed without
first obtaining the written consent of the other party unless there has been a
prior public disclosure of the information being disclosed by the other party or
with the other party's consent.
ARTICLE XII. MISCELLANEOUS
12.01 Force Majeure. Except as specifically set forth herein, neither
Neoprobe nor Kol shall be in default under this Agreement nor liable for any
failure to perform or for delay in performance resulting from any cause beyond
its reasonable control or due to compliance with any regulations, orders, or act
of any federal, provincial, state or municipal government, or any department or
agency thereof, civil or military authority; acts of God, acts or omissions of
the other party, fires, floods or weather; strikes or lockouts; factory
shutdowns, embargoes, wares, hostilities or riots; delays or shortages in
transportation; or inability to obtain labor, manufacturing facilities or
material.
12.02 Taxes. Each of the parties shall bear all taxes imposed on it as
a result of its performance or receipt of funds under this Agreement including,
but not restricted to, any sales tax, any tax on or measured by any royalty or
other payment required to be made by it hereunder, any registration tax, any tax
imposed with respect to the granting of or transfer of licenses or other rights
hereunder or the payment or receipt of royalties hereunder. The parties shall
cooperate fully with each other in obtaining and filing all requisite
certificates and documents with the appropriate authorities and shall take such
further action as may reasonably be necessary to avoid the deduction of any
withholding or similar taxes from any remittance of funds by Kol to Neoprobe
hereunder.
12.03 Notices. 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, in the English language, and shall be
deemed to have been duly made or given when (i) delivered personally with
receipt acknowledged, (ii) mailed in any general or branch United States Post
Office, enclosed in a registered or certified postage-paid envelope, return
receipt requested, or (iii) sent by facsimile, telex or cablegram (which shall
promptly be confirmed by a writing sent by registered or certified mail, return
receipt requested), or (iv) sent by recognized overnight courier for next day
delivery, 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 number as any party shall hereafter specify by Communication to the
other parties:
TO KOL: Kol Bio-Medical Instruments, Inc.
13901 Willard Road,
Chantilly, Virginia 20151
Attention: CEO/Chairman
Fax #: 703/3784-4936
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.
14
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Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
TO NEOPROBE: President/CEO
Neoprobe Corporation
425 Metro Pl. N., Suite 300
Dublin, Ohio 43017
Fax #: 614/795-7520
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; or, (ii) one day after being sent by facsimile, cable, telex (each
promptly confirmed by a writing as aforesaid) or overnight courier and four (4)
business days after mailing.
12.04 Agreement Subject to Applicable Law. Neoprobe agrees that its
rights under this Agreement shall be subject to any limitations or restrictions
imposed on Kol by the laws or regulations of the U.S. or any respective agency
thereof, and Neoprobe agrees to take no action which would cause Kol to be in
violation of any such laws or regulations.
12.05 Governing Law. The provisions of this Agreement shall be
construed in accordance with the laws of the State of Ohio.
12.06 Other Instruments. The parties hereto covenant and agree that
they will execute such other and further instruments and documents as are or may
become reasonably necessary or convenient to effectuate and carry out the
provisions of this Agreement or may be reasonably requested by the other party.
12.07 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.
12.08 Entire Agreement, Modification, Consents and Waivers. This
Agreement supersedes all prior agreements, written or oral, between the parties
whether with respect to the subject matter herein, and contains the entire
agreement of the parties with respect to the subject matter hereof and, except
as provided herein, no interpretation, change, termination or waiver of or
extension of time for performance under any provision of this Agreement shall be
binding upon any party unless in writing and signed by the party intended to be
bound thereby. Receipt by any party of money or other consideration due under
this Agreement, with or without knowledge of breach, shall not constitute a
waiver of such breach or any provision of this Agreement. Except as otherwise
provided in this Agreement, no waiver of or other failure to exercise any right
under, or default or extension of time for performance under, any provision of
this Agreement shall affect the right of any party to exercise any subsequent
right under or otherwise enforce said provision or any other provision hereof or
to exercise any right or remedy in the event of any other default, whether or
not similar.
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.
15
<PAGE> 20
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
12.09 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",
"hereinabove", "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 masculine gender shall include the feminine and neuter, and
vice versa, unless the context otherwise requires.
12.10 Execution Counterparts. This Agreement may be executed in any
number of counterparts and each 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.
12.11 Consents and Approval. Unless otherwise expressly provided
herein, whenever in this Agreement a consent or approval is to be given by any
party hereto, such consent or approval may be given or withheld, as the case may
be, in the sole and absolute discretion of such party.
12.12 Arbitration. In the event of a dispute between Neoprobe and Kol
relating to a party's performance under this Agreement or a disagreement as to
the meaning of any of the terms of this Agreement, the parties agree to hold
good faith discussions to resolve such dispute. If the parties can not resolve
such dispute within sixty (60) days after beginning good faith negotiations, the
parties agree to submit the dispute to arbitration for final resolution. The
arbitration shall be conducted by three (3) arbitrators in accordance with the
commercial rules of the American Arbitration Association, which shall administer
the arbitration and act as appointing authority. The arbitration, including the
rendering of the award, shall take place in Philadelphia, Pennsylvania and such
location shall be the exclusive forum for resolving such dispute, controversy or
claim. The decision of the majority of the arbitrators shall be binding upon the
parties hereto, and the expense of the arbitration shall be paid as the
arbitrators determine. The decision of the arbitrators shall be executory, and
judgment thereon may be entered by any court of competent jurisdiction. The
arbitrators shall award attorneys' fees to the prevailing party.
ARTICLE XIII. RELATIONSHIP OF THE PARTIES
13.01 Relationship of the Parties. Nothing contained in this Agreement
shall be deemed to create a partnership or joint venture between the parties,
and each of the parties shall in all matters connected herewith be independent
contractors. Neither of the parties hereto shall hold itself out as the agent of
the other, nor shall either of the parties incur any indebtedness or obligation
in the name of, or which shall be binding on the other, without the prior
written consent of the other. No employees, agents, or sales representatives of
either party shall be deemed employees, agents or sales representatives of the
other party.
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.
16
<PAGE> 21
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
ARTICLE XIV. BINDING EFFECT, ASSIGNMENT
14.01 Binding Effect, Assignment. This Agreement shall inure to the
benefit and be binding upon each of the parties hereto and their respective
successors and assigns. Neither this Agreement, nor any of the rights and
obligations under this Agreement, may be assigned, transferred or otherwise
disposed of by either party without the prior consent of the other party,
unless, such assignment, transfer or disposition is to a successor to all the
business and assets of the transferor; provided that, such successor shall in
any event agree in writing with the other party to assume all obligations of the
transferor under this Agreement in a manner satisfactory to the other party.
Subject to the foregoing limitations, the Agreement shall be binding upon and to
the benefit of the respective successors and assigns of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officer thereunto duly authorized as of the date
first hereinabove written.
<TABLE>
<CAPTION>
<S> <C>
KOL BIO-MEDICAL INSTRUMENTS, INC. NEOPROBE CORPORATION
By: /s/ Roger S. Kolasinski By: /s/ David C. Bupp
- ----------------------------------------- -------------------------------------
Name: Roger S. Kolasinski Name: David C. Bupp
Title: Chief Executive Officer/Chairman President & Chief Executive Officer
Date: Date:
----------------------------------- ------------------------------------
</TABLE>
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.
17
<PAGE> 22
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
SCHEDULE 1.08
List of Products
----------------
CONTROL UNITS Model No.
- ------------- ---------
o Neoprobe 1500 Control Unit and Accessories
Neoprobe 1500 Control Unit 1500
Reusable Detector Probe Cable 1003
North American Battery Charger 1504
Background Shield 1007
Carrying Case 1514
Model 1500 Operation Manual 1508
Accessories Case 2010
Neoprobe 1500 Instructional Video 1502
o neo2000 Control Unit and Accessories
Neo2000 Control Unit 2000
Reusable Detector Probe Cable 1003
Adaptor cable (Hirose to LEMO) 2007
Neo2000 Operation Manual 2008
AC power cord 2009
Accessories Case 2010
Neo2000 Instructional video (not currently available) 2020
PROBES
- ------
14 mm Reusable Detector Probe (incl. Collimator) 1017
14 mm Detector Probe Collimator 1013
19 mm Reusable Detector Probe (incl. Collimator & shield) 1002
19 mm Detector Probe Collimator 1015
19 mm Detector Probe Shield 1016
ACCESSORIES
- -----------
Reusable Detector Probe Cable 1003
North American Battery Charger Transformer 1504
Model 1500 Operation Video 1502
Background Shield 1007
Model 1500 Operation Manual 1508
Carrying Case for Neoprobe 1500 1514
Adaptor Cable (Hirose to LEMO) 2007
neo2000 Operations Manual 2008
AC power cord 2009
Accessories Case 2010
SYSTEM PACKAGES
- ---------------
Neoprobe 1500 with one 14 mm probe & accessories 1573
Neoprobe 1500 with two 14 mm probes & accessories 1574
Neoprobe 1500 with one each 14 & 19 mm probes & accessories 1575
Neoprobe 1500 with one 19 mm probe & accessories 1576
neo2000 with one 14 mm probe & accessories 2073
neo2000 with two 14 mm probes & accessories 2074
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> 23
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
SCHEDULE 2.06
EXAMPLE OF DEMONSTRATION UNIT WARRANTY CALCULATION
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2
<S> <C>
10. Demonstration unit has an original warranty period of 20. Demonstration unit has an original warranty period of
***. ***.
30. Demo unit has *** remaining on original warranty period. 40. Demo unit has *** remaining on original warranty
period.
50. The demo unit is refurbished and receives a *** 60. The demo unit is refurbished and receives a ***
warranty (***). warranty (***).
70. The total warranty for the refurbished demo unit = *** 80. The total warranty for the refurbished demo unit = ***
(Item 2) plus *** (Item 3) for a total warranty of (Item 2) plus *** (Item 3) for a total warranty of
***. ***; EXCEPT that the warranty period on a refurbished
demo unit may not exceed the original warranty period
of ***; accordingly, warranty for refurbished unit
equals ***.
</TABLE>
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.
18
<PAGE> 24
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
SCHEDULE 3.01
COMMISSION RATE
- -------------------------------------------------------------------
YEAR NET SALES ($)* COMMISSION
RATE (%)
- -------------------------------------------------------------------
1 *** ***
*** ***
- -------------------------------------------------------------------
2 *** ***
*** ***
- -------------------------------------------------------------------
3 *** ***
*** ***
- -------------------------------------------------------------------
4 and up *** ***
- -------------------------------------------------------------------
* Net Sales are in *** of dollars.
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.
19
<PAGE> 25
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
SCHEDULE 3.02
MILESTONE PAYMENTS
YEAR MILESTONE PAYMENT
- --------------------------------------------------------------------------------
NET SALES ($)* AMOUNT ($)
- --------------------------------------------------------------------------------
1 At Least *** ***
At Least *** ***
- --------------------------------------------------------------------------------
2 At Least *** ***
At Least *** ***
- --------------------------------------------------------------------------------
3 and up ***
- --------------------------------------------------------------------------------
* Net Sales are in *** of dollars.
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.
20
<PAGE> 26
Omitted portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
SCHEDULE 6.07
EXAMPLE OF CALCULATION OF TERMINATION FEE
HYPOTHETICAL EXAMPLE
<TABLE>
<CAPTION>
ITEM AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Total Net Sales for *** Period Prior to Effective Date ***
of Termination
- -----------------------------------------------------------------------------------------------------------------------
1. Average Monthly Net Sales for *** Period Prior to ***
Effective Date of Termination
- -----------------------------------------------------------------------------------------------------------------------
2. Termination Amount = *** times Average Monthly Net ***
Sales
- -----------------------------------------------------------------------------------------------------------------------
1. Multiplier = *** Effective Date of Termination = ***;
Effective Date of Agreement = ***;
***
- -----------------------------------------------------------------------------------------------------------------------
1. Termination Fee = *** times the Termination Amount ***
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
21
<PAGE> 1
Exhibit 11.1
NEOPROBE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Loss attributable to common shareholders $ (3,119,272) $ (7,063,612)
Weighted average number of shares outstanding:
Weighted average common shares
outstanding beginning of period 22,887,910 22,763,430
Weighted average common shares
issued during period 60,444 15,847
============ ============
Weighted average number of shares outstanding
used in computing basic net loss per share 22,948,354 22,779,277
============ ============
Weighted average number of shares used in
computing diluted net loss per share 22,948,354 22,779,277
============ ============
Earnings (Net Loss) Per Share:
Basic $ (0.14) $ (0.31)
============ ============
Diluted $ (0.14) $ (0.31)
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000810509
<NAME> NEOPROBE CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,933,829
<SECURITIES> 0
<RECEIVABLES> 2,027,771
<ALLOWANCES> 114,000
<INVENTORY> 1,491,174
<CURRENT-ASSETS> 8,118,716
<PP&E> 3,069,477
<DEPRECIATION> 1,732,418
<TOTAL-ASSETS> 11,965,470
<CURRENT-LIABILITIES> 5,504,435
<BONDS> 130,469
1,814,525
0
<COMMON> 22,968
<OTHER-SE> 4,493,073
<TOTAL-LIABILITY-AND-EQUITY> 11,965,470
<SALES> 1,910,971
<TOTAL-REVENUES> 1,910,971
<CGS> 619,653
<TOTAL-COSTS> 619,653
<OTHER-EXPENSES> 462,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,526
<INCOME-PRETAX> (1,307,747)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,307,747)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,307,747)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
