<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: SEPTEMBER 30, 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___
23,047,644 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 November 1, 1999
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------- --------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,783,354 $3,054,936
Available-for-sale securities - 448,563
Accounts receivable, net 1,914,199 2,069,633
Inventory 1,944,460 1,578,912
Prepaid expenses 414,875 720,420
Other current assets 39,830 147,008
------------------- --------------------
Total current assets 9,096,718 8,019,472
------------------- --------------------
Investment in affiliates 1,500,000 1,500,000
Property and equipment 3,085,859 3,073,931
Less accumulated depreciation and amortization 1,904,816 1,654,661
------------------- --------------------
1,181,043 1,419,270
------------------- --------------------
Intangible assets, net 776,911 773,863
Other assets 1,552 281,594
------------------- --------------------
Total assets $ 12,556,224 $ 11,994,199
=================== ====================
</TABLE>
CONTINUED
2
<PAGE> 3
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------- -------------------
<S> <C> <C>
Current liabilities:
Line of credit $ 480,000 $ 1,000,000
Notes payable to finance company - 242,163
Capital lease obligations, current 98,831 99,539
Unearned license fees, current 800,000 -
Accounts payable 1,398,280 2,857,717
Accrued liabilities 3,247,892 2,813,321
------------------- --------------------
Total current liabilities 6,025,003 7,012,740
------------------- --------------------
Capital lease obligations 82,146 155,816
Unearned license fees 3,200,000 -
------------------- --------------------
Total liabilities 9,307,149 7,168,556
------------------- --------------------
Commitments and contingencies - -
Redeemable convertible preferred stock:
Series B; $.001 par value; 63,000 shares and no shares
authorized at September 30, 1999 and
December 31, 1998, respectively; 30,000 shares and
no shares issued and outstanding at September 30, 1999
and December 31, 1998, respectively 3,708,036 -
Stockholders' equity (deficit):
Preferred stock; $.001 par value; 5,000,000 shares
authorized at September 30, 1999 and
December 31, 1998; none issued and outstanding
(500,000 shares designated as Series A, $.001 par
value, at September 30, 1999 and December 31, 1998;
none outstanding) - -
Common stock; $.001 par value; 50,000,000 shares
authorized; 23,046,644 shares issued and
outstanding at September 30, 1999; 22,887,910
shares issued and outstanding at December 31, 1998 23,047 22,888
Additional paid-in capital 119,419,704 120,272,899
Accumulated deficit (119,814,294) (115,395,283)
Accumulated other comprehensive loss (87,418) (74,861)
------------------- --------------------
Total stockholders' equity (deficit) (458,961) 4,825,643
------------------- --------------------
Total liabilities and stockholders' equity $ 12,556,224 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 1,400,785 $ 1,702,338 $ 5,226,406 $ 3,821,262
Cost of goods sold 468,553 454,024 1,745,476 1,019,081
----------------- ---------------- --------------- -----------------
Gross profit 932,232 1,248,314 3,480,930 2,802,181
----------------- ---------------- --------------- -----------------
Operating expenses:
Research and development 77,807 2,732,569 892,103 10,659,296
Marketing and selling 1,623,874 1,561,904 3,881,296 3,780,418
General and administrative 1,077,589 1,256,487 2,893,814 4,008,141
Losses related to subsidiaries in liquidation - 1,441,974 475,231 2,772,294
----------------- ---------------- --------------- -----------------
Total operating expenses 2,779,270 6,992,934 8,142,444 21,220,149
----------------- ---------------- --------------- -----------------
Loss from operations (1,847,038) (5,744,620) (4,661,514) (18,417,968)
----------------- ---------------- --------------- -----------------
Other income (expense):
Interest income 15,916 105,861 63,906 555,317
Interest expense (25,838) (100,886) (68,783) (152,982)
Other 176,139 134,682 247,380 86,002
----------------- ---------------- --------------- -----------------
Total other income (expense) 166,217 139,657 242,503 488,337
----------------- ---------------- --------------- -----------------
Net loss (1,680,821) (5,604,963) (4,419,011) (17,929,631)
----------------- ---------------- --------------- -----------------
Conversion discount on preferred stock - - 1,795,775 -
Accretion to potential redemption value 1,804,225 - 1,804,225 -
Preferred stock dividend requirements 51,786 - 108,036 -
----------------- ---------------- --------------- -----------------
Loss attributable to common stockholders $ (3,536,832) $ (5,604,963) $ (8,127,047) $ (17,929,631)
================= ================ =============== =================
Loss per common share
(basic and diluted)
$ (0.15) $ (0.24) $ (0.35) $ (0.79)
================= ================ =============== =================
Weighted average shares
outstanding during the period
(basic and diluted) 23,044,405 22,884,528 22,988,908 22,823,382
================= ================ =============== =================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
NEOPROBE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------------------- --------------------
<S> <C> <C>
Net cash used in operating activities $ (631,700) $ (18,674,539)
Cash flows from investing activities:
Purchases of available-for-sale securities - (1,738,512)
Proceeds from sales of available-for-sale securities 443,729 3,741,357
Maturities of available-for-sale securities 4,467 11,050,000
Purchases of property and equipment (67,065) (2,405,865)
Proceeds from sales of property and equipment 23,439 -
Patent costs (21,195) (430,870)
------------------- --------------------
Net cash provided by investing activities 383,375 10,216,110
------------------- --------------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 145 196,343
Proceeds from issuance of redeemable convertible
preferred stock, net 2,818,065 -
Proceeds from line of credit 480,000 700,000
Payments under line of credit (1,000,000) (275,750)
Payments under notes payable (242,163) (202,615)
Payments under capital leases (74,378) (118,271)
Proceeds from long-term debt - 2,666,118
------------------- --------------------
Net cash provided by financing activities 1,981,669 2,965,825
------------------- --------------------
Effect of exchange rate changes on cash ( 4,926) (6,169)
------------------- --------------------
Net increase (decrease) in cash and cash equivalents 1,728,418 (5,498,773)
Cash and cash equivalents at beginning of period 3,054,936 9,921,025
------------------- --------------------
Cash and cash equivalents at end of period $ 4,783,354 $ 4,422,252
=================== ====================
</TABLE>
5
<PAGE> 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The information presented for September 30, 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): Other comprehensive income (loss) consists of
the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $1,680,821 $5,604,963 $4,419,011 $17,929,631
Foreign currency translation adjustment 11,134 (15,224) 12,338 (5,202)
Unrealized (gains) losses on securities - (11,737) 219 (23,169)
-------------- -------------- ------------- ---------------
Other comprehensive loss $1,691,955 $5,578,002 $4,431,568 $17,901,260
============== ============== ============= ===============
</TABLE>
3. INVENTORY:
The components of inventory are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------------- -----------------
<S> <C> <C>
Materials and component parts $ 140,314 $ 277,505
Finished goods 1,804,146 1,301,407
---------------- -----------------
$ 1,944,460 $ 1,578,912
================ =================
</TABLE>
4. DEBT:
At December 31, 1998, the Company had a $1 million revolving line of
credit arrangement with a bank, which was secured by $1 million in
pledged cash and investments of the Company. This line of credit
expired under its terms on August 31, 1999. During August 1999, the
Company negotiated a new line of credit with another bank. The new line
of credit matures on December 31, 1999, provides for a maximum
outstanding principal of $500,000 and bears interest at the bank's
prime rate plus one percent. The new line of credit is secured by the
assets of the Company, excluding intellectual property and equipment
related to the Company's ILM technology. As of September 30, 1999,
$480,000 was outstanding under the new line of credit.
6
<PAGE> 7
5. EQUITY:
A. PRIVATE PLACEMENT: On February 16, 1999, the Company executed a
Preferred Stock and Warrant Purchase Agreement (the "Purchase
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 are
convertible into common stock of the 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 share calculation and are
included in the carrying value of the Series B at September 30,
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 (the "Series B Holders") have certain
liquidation preferences over other stockholders under certain
provisions as defined in the Purchase Agreement and have the right
to cast the same number of votes as if the owner had converted on
the record date.
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. Both the Series B and the warrants
issuable under the financial advisory agreement are subject to
repricing features similar to the outstanding Series B and related
warrants. 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, if any.
The Series B 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.
7
<PAGE> 8
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 meet
filing deadlines for a registration statement for common stock
into which the Series B may be converted, 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 the liquidation or merger of the Company
or the sale of substantially all of the Company's assets.
The Company obtained a waiver from the Series B Holders related to
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. However, on July 28, 1999, the NASDAQ Stock Market, Inc.
delisted the Company's common stock from the NASDAQ National
Market System ("NASDAQ NMS"). Management believes that the
likelihood that the Series B Holders will request redemption has
increased as a result of the delisting and other events that
occurred during the third quarter of 1999. Accordingly, the
Company recorded a charge of $1.8 million during the quarter ended
September 30, 1999 to accrete the originally recorded book value
of $1.8 million up to the potential redemption value, stipulated
in the Purchase Agreement, of $3.6 million.
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 412,500
shares of common stock, exercisable at $1.25 per share, vesting
over three to four years. During the second quarter of 1999, the
Board of Directors granted 105,000 options to non-employee
directors under the Plan, exercisable at $0.72 per share, in lieu
of waived cash compensation. As of September 30, 1999, the
Company has 1.4 million options outstanding under two stock
option plans. Of the outstanding options, 614,000 options have
vested as of September 30, 1999, at an average exercise price of
$6.49 per share.
6. SEGMENTS AND SUBSIDIARIES INFORMATION:
Prior to the changes in the Company's business plan made starting in
early 1998 and continuing through September 30, 1999, 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 a therapeutic process
using a patient's own cancer fighting cells referred to as 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, development and commercialization activities.
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) Ltd. ("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 Company.
Under Statement of Financial Accounting Standards ("SFAS") No. 131,
neither subsidiary has been considered a segment. Both Neoprobe Europe
and Neoprobe Israel have been accounted for under the liquidation
method of accounting as of December 31, 1998. The results of the
operations of Neoprobe Europe and Neoprobe Israel for 1998, as well as
the effects of adjustment of their related assets in conformity with
the liquidation basis of accounting, have been reclassified from prior
year presentations to
8
<PAGE> 9
be presented as losses relating to subsidiaries in liquidation in the
consolidated statements of operations. Accordingly, the consolidated
balance sheet includes $13,000 and $96,000 in current assets at their
net realizable values and $4,000 and $893,000 in liabilities at the
amounts expected to settle the obligations due as of September 30, 1999
related to Neoprobe Europe and Neoprobe Israel, respectively. Neoprobe
Europe is expected to file its final liquidation reports with the
Swedish government as of October 31, 1999 at which time any residual
net assets will be returned to the Company by the liquidator. The
Company also believes that the appointment of a Receiver for Neoprobe
Israel on October 24, 1999 (See Note 8.) may result in the settlement
of the liabilities of Neoprobe Israel at substantially less than their
recorded values. However, there can be no assurance that a settlement
will occur, or if it occurs, that the settlement will result in a gain
for the Company.
The information in the following table is derived directly from the
segments' internal financial reporting used for corporate management
purposes. The expenses attributable to corporate activity, including
amortization and interest, and other general and administrative costs
are not allocated to the individual segments.
Three months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
($ AMOUNTS IN THOUSANDS) THREE MONTHS ENDED SEPTEMBER 30, 1999
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenue
U.S. customers $ - $1,229 $ - $ - $ 1,229
International customers - 172 - - 172
Research and development expenses - 78 - - 78
Marketing and selling expenses - 1,624 - - 1,624
General and administrative expenses - - - 1,078 1,078
Losses related to subsidiaries in liquidation - - - - -
Other income - - - 166 166
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenue
U.S. customers $ - $ 1,621 $ - $ - $ 1,621
International customers - 81 - - 81
Research and development expenses 1,650 707 376 - 2,733
Marketing and selling expenses - 1,562 - - 1,562
General and administrative expenses - - - 1,256 1,256
Losses related to subsidiaries in liquidation 1,442 - - - 1,442
Other income - - - 140 140
</TABLE>
9
<PAGE> 10
Nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
($ AMOUNTS IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, 1999
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenue
U.S. customers $ - $4,107 $ - $ - $ 4,107
International customers - 1,119 - - 1,119
Research and development expenses - 892 - - 892
Marketing and selling expenses - 3,881 - - 3,881
General and administrative expenses - - - 2,894 2,894
Losses related to subsidiaries in liquidation 475 - - - 475
Other income - - - 243 243
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenue
U.S. customers $ - $ 3,581 $ - $ - $ 3,581
International customers - 240 - - 240
Research and development expenses 6,667 2,727 1,265 - 10,659
Marketing and selling expenses - 3,780 - - 3,780
General and administrative expenses - - - 4,008 4,008
Losses related to subsidiaries in liquidation 2,772 - - - 2,772
Other income - - - 488 488
</TABLE>
7. AGREEMENTS:
In April 1998, the Company executed a non-exclusive Sales and Marketing
Agreement with Ethicon Endo-Surgery, Inc. ("EES"), a subsidiary of
Johnson & Johnson, 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.
The Company terminated the Sales and Marketing Agreement with KOL
effective October 31, 1999. In connection with the termination, the
Company agreed to pay KOL any outstanding commission amounts due as
well as a fee to terminate the agreement. The $700,000 termination fee
was accrued at September 30, 1999 and is included in Marketing and
selling expenses for the quarter then ended. The Company also agreed to
repurchase any unsold demonstration units that had been purchased by
KOL for approximately $1 million.
The Company entered into a new Distribution Agreement (the "Agreement")
with EES effective October 1, 1999 for an initial five-year term with
options to extend for two successive two-year terms. Under the
Agreement, the Company will manufacture and sell its ILM products (the
"Products") exclusively to EES who will distribute the Products
globally. EES agreed to purchase minimum quantities of the Company's
Products over the first three years of the term of the Agreement and to
reimburse the Company for certain research and development costs and a
portion of the Company's warranty costs. EES also agreed to purchase
the demonstration units returned from KOL. The Company is obligated to
continue certain product maintenance activities and to provide ongoing
regulatory support for the Products.
EES may terminate the Agreement if the Company fails to supply Products
for specified periods, commits a material breach of the Agreement,
suffers a change of control of the Company, or becomes insolvent. If
10
<PAGE> 11
termination is due to failure to supply or a material breach by the
Company, EES would have the right to use the Company's intellectual
property and regulatory information to manufacture and sell the
Products exclusively on a global basis for the remaining term of the
Agreement with no additional financial obligation to the Company. If
termination is due to insolvency or a change of control that does not
affect supply of the Products, EES has the right to continue to sell
the Products on an exclusive global basis for a period of six months or
require the Company to repurchase any unsold Product in its inventory.
Under the Agreement, Ethicon received a non-exclusive, worldwide
paid-up license (the "License") to the Company's ILM intellectual
property to make and sell other products that may be developed using
the Company's ILM intellectual property. The term of the License is the
same as that of the Agreement. EES paid the Company a non-refundable
license fee of $4 million. The Company intends to recognize the license
fee as revenue over the five-year initial term of the Agreement. If the
Agreement is terminated by the Company as a result of a material breach
by EES, EES would be required to pay the Company a royalty on all
products developed and sold by EES using the Company's ILM intellectual
property. In addition, the Company is entitled to a royalty on any ILM
product commercialized by EES that does not infringe any of the
Company's existing intellectual property.
8. CONTINGENCIES:
a. POTENTIAL REDEMPTION OF SERIES B: On July 28, 1999, the NASDAQ Stock
Market, Inc. delisted the Company's common stock from the NASDAQ
NMS. Management believes that as a result of events which occurred
subsequent to June 30, 1999, the holders of the Series B have the
option to request redemption of the Series B. If the Series B
holders decide to request redemption, the Purchase Agreement would
appear to require the Company to pay the Series B holders
approximately $3.6 million. Management of the Company has approached
the holders of the Series B in an attempt to restructure the Series
B transaction. However, there can be no assurances that the Company
will be able to restructure the Series B transaction at terms
acceptable to the Company or at all. Management believes the best
estimate of the potential settlement value to be an amount
consistent with the $3.6 million redemption value stipulated in the
Purchase Agreement.
b. NEOPROBE ISRAEL: 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 unsecured vendors. On October 17, 1999 one of the unsecured
vendors filed a motion with the Israeli courts for a "winding up" of
Neoprobe Israel. On October 24, 1999, based on the bank's secured
interest in the facility, the Israeli courts appointed a
representative of the bank as Receiver for Neoprobe Israel. The
appointment of a Receiver has superceded the motion from the
unsecured vendor. The Company expects the Receiver to attempt to
sell the facility and/or its equipment and to use any proceeds to
repay the creditors of Neoprobe Israel to the extent possible.
Management of the Company continues to believe that Neoprobe
Corporation's only ongoing contractual obligation related to
Neoprobe Israel relates to the limited amount guarantee which is
fully secured through $993,000 in restricted cash and investments on
deposit with the bank. However, it is possible that the Company may
be subject to additional claims related to Neoprobe Israel.
Management does not believe such claims, if any, would have a
material adverse affect on the Company's financial position or
results of operations.
9. LIQUIDITY:
Through September 30, 1999, the Company's activities have resulted in
an accumulated deficit of $120 million. However, beginning in the first
half of 1998, the Company began a series of changes to its business
plan. Since that time, the Company has continued to modify its business
plan to one that is almost solely focused on the continued development
of the Company's ILM business. As of September 30, 1999, the Company
had cash and cash equivalents of $4.8 million. This amount includes the
$4 million up-front license payment received from EES. Of the $4.8
million, approximately $1.0 million is restricted related to the debt
outstanding under the financing program for the construction of
Neoprobe Israel's radiolabeling
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facility. At September 30, 1999, the Company had access to
approximately $3.8 million in unrestricted funds to finance its
operating activities. The Company expects to generate positive cash
flow from operations in the near term, possibly as early as the fourth
quarter of 1999, as a result of the Distribution Agreement with EES.
However, there can be no assurances that the Company will achieve the
volume of sales anticipated in connection with the Agreement, or if
achieved that the margin on such sales will be adequate to produce
positive operating cash flow. The Company expects to continue to
experience cost savings during the fourth quarter of 1999 as a result
of the transfer of marketing responsibilities for the Company's ILM
products to EES. The Company is also attempting to sell its $1.5
million investment in XTL Biopharmaceuticals Ltd. However, there can be
no assurance that this asset will be sold during 1999, on terms
acceptable to the Company, or at all. The Company believes that the
aforementioned cash balances and sources of future cash flow are
adequate for the Company to continue operating for the foreseeable
future. 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 alternatives may include
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, 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
Operating Activities. Through September 30, 1999, the Company's activities have
resulted in an accumulated deficit of $120 million. Substantially all of the
Company's efforts and resources through early 1999 were devoted to research and
clinical development of innovative systems for the intraoperative diagnosis and
treatment of cancers. These efforts were principally related to the Company's
proprietary RIGS system. Efforts in recent years also included activities
related to development of the Company's ACT process and ILM products. To-date,
the Company's activities have been financed primarily through the public and
private sale of equity securities.
Beginning in the first half of 1998, due primarily to feedback received from
regulatory authorities in the U.S. and Europe related to the Company's
applications for marketing approval for its RIGScan CR49 product, the Company
began a series of changes to its business plan. Since that time, the Company has
continued to modify its business plan to one that is almost solely focused on
the continued development of the Company's ILM business. During the first nine
months of 1999, the Company has continued the operating expense reduction
efforts started in 1998 and has almost entirely eliminated non-ILM-related
research and development activities. To further support the Company's goal of
achieving operating profitability, the Company entered into a multi-year
Distribution Agreement with EES, a subsidiary of Johnson & Johnson, effective
October 1, 1999. As a result of entering the Agreement, the Company expects to
achieve operating profitability in the near term, possibly as early as the
fourth quarter of 1999. However, there can be no assurances that the Company
will achieve the volume of sales anticipated in connection with the Agreement,
or if achieved, that the margin on such sales will be adequate to achieve
operating profitability in the near term, or at all. In order to support the
anticipated increase in demand for the Company's ILM products
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expected in connection with entering the Agreement, the Company increased its
inventory levels during the third quarter of 1999. However, the Company expects
both inventory and receivable levels to decrease over time as the strategic
relationship progresses and the Company manages its production and sales to meet
EES's ongoing needs.
Investing Activities. The Company's investing activities during the first nine
months 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 nine months of 1998, the Company made significant
capital expenditures on construction at Neoprobe Israel. 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, owns a 5% equity interest in Neoprobe
Israel. 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
anticipated that Neoprobe Israel may have to relinquish ownership of the
facility to the bank if a suitable buyer cannot be found on a timely basis, the
Company wrote 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. On October 24, 1999, due to the bank's secured interest in the
facility, the Israeli courts appointed a representative of the bank as Receiver
for Neoprobe Israel. The Company expects the Receiver to attempt to sell the
facility and/or its equipment and to use any proceeds to repay the creditors of
Neoprobe Israel to the extent possible. Management of the Company continues to
believe that Neoprobe Corporation's only ongoing contractual obligation related
to Neoprobe Israel relates to the limited amount guarantee which is fully
secured through $993,000 in restricted cash and investments and that the
appointment of a Receiver for Neoprobe Israel may result in the settlement of
the liabilities of Neoprobe Israel at substantially less than their recorded
values. However, there can be no assurance that a settlement will occur, or if
it occurs, that the settlement will result in a gain for the Company. It is also
possible that the Company may be subject to additional claims related to
Neoprobe Israel. Management does not believe such claims, if any, would have a
material adverse affect on the Company's financial position or results of
operations.
Financing Activities. On February 16, 1999, the Company completed the private
placement of $3.0 million of convertible preferred stock (i.e., the Series B).
Under certain conditions, the Company may be obligated to redeem outstanding
shares of Series B for $120 per share (or a total of $3.6 million). Conditions
under which redemption may be required include: failure to meet filing deadlines
for a registration statement for common stock into which the Series B may be
converted, delisting from the NASDAQ Stock Market, a material qualification of
the audit opinion on the consolidated financial statements, or the liquidation
or merger of the Company or the sale of substantially all of the assets of the
Company.
The Company obtained a waiver from the Series B Holders related to 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. However, on July 28, 1999, the NASDAQ Stock Market,
Inc. delisted the Company's common stock from the NASDAQ National Market System
("NASDAQ NMS"). Management believes that the likelihood that the Series B
Holders will request redemption of the Series B increased as a result of the
delisting and other events that occurred during the third quarter of 1999.
Accordingly, the Company recorded a charge of $1.8 million during the quarter
ended September 30, 1999 to accrete the originally recorded book value of $1.8
million up to the potential redemption value of $3.6 million.
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. The Company entered into a Distribution Agreement (the "Agreement") with
Ethicon Endo-Surgery, Inc. ("EES"), a subsidiary of Johnson & Johnson, effective
October 1, 1999, for an initial five-year term with options, on the part of EES,
to extend for two successive two-year terms. Under the Agreement, the Company
will manufacture and sell its ILM products (the "Products") exclusively to EES
who will distribute the Products globally. EES agreed to purchase minimum
quantities of the Company's Products over the first three years of the term of
the Agreement and to reimburse the Company for certain research and development
costs and a portion of
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the Company's warranty costs. EES also agreed to purchase the demonstration
units returned from KOL. The Company is obligated to continue certain product
maintenance activities and to provide ongoing regulatory support for the
Products. As a result of entering the Agreement, the Company expects to achieve
operating profitability in the near term, possibly as early as the fourth
quarter of 1999. However, there can be no assurances that the Company will
achieve the volume of sales anticipated in connection with the Agreement, or if
achieved, that the margin on such sales will be adequate to achieve operating
profitability in the near term, or at all.
EES may terminate the Agreement if the Company fails to supply Products for
specified periods, commits a material breach of the Agreement, suffers a change
of control of the Company, or becomes insolvent. If termination is due to
failure to supply or a material breach by the Company, EES would have the right
to use the Company's intellectual property and regulatory information to
manufacture and sell the Products exclusively on a global basis for the
remaining term of the Agreement with no additional financial obligation to the
Company. If termination is due to insolvency or a change of control that does
not affect supply of the Products, EES has the right to continue to sell the
Products on an exclusive global basis for a period of six months or require the
Company to repurchase any unsold Product in its inventory.
Under the Agreement, Ethicon received a non-exclusive, worldwide paid-up license
(the "License") to the Company's ILM intellectual property to make and sell
other products that may be developed using the Company's ILM intellectual
property. The term of the License is the same as that of the Agreement. EES paid
the Company a non-refundable license fee of $4 million. The Company intends to
recognize the license fee as revenue ratably over the five-year initial term of
the Agreement. If the Agreement is terminated by the Company as a result of a
material breach by EES, EES would be required to pay the Company a royalty on
all products developed and sold by EES using the Company's ILM intellectual
property. In addition, the Company is entitled to a royalty on any ILM product
commercialized by EES that does not infringe any of the Company's existing
intellectual property.
As of September 30, 1999, the Company had cash and cash equivalents of $4.8
million. This amount includes the $4 million up-front license payment received
from EES. Of the $4.8 million, approximately $1.0 million is restricted related
to the debt outstanding under the financing program for the construction of
Neoprobe Israel's radiolabeling facility. At September 30, 1999, the Company had
access to approximately $3.8 million in unrestricted funds to finance its
operating activities. The Company expects to generate positive cash flow from
operations in the near term, possibly as early as the fourth quarter of 1999, as
a result of the Distribution Agreement with EES. However, there can be no
assurances that the Company will achieve the volume of sales anticipated in
connection with the Agreement, or if achieved that the margin on such sales will
be adequate to produce positive operating cash flow. The Company expects to
continue to experience cost savings during the fourth quarter of 1999 as a
result of the transfer of marketing responsibilities for the Company's ILM
products to EES. The Company is also attempting to sell its $1.5 million
investment in XTL Biopharmaceuticals Ltd. However, there can be no assurance
that this asset will be sold during 1999, on terms acceptable to the Company, or
at all. The Company believes that the aforementioned cash balances and sources
of future cash flow are adequate for the Company to continue operating for the
foreseeable future. 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 alternatives may include asset dispositions
that could force the Company to further change its business plan.
The Company has also entered into preliminary discussions regarding the
potential sale of the Company's ILM technology. If these discussions were to
result in an offer to purchase the Company's ILM technology, the offer would be
subject to the approval of the Series B Holders and Company's shareholders.
However, as such discussions are only in the preliminary stages, there can be no
assurances that the discussions will result in an offer to purchase the ILM
technology or that such an offer, if made, would be at a price acceptable to the
Series B Holders or the shareholders. Speculation that a potential sale of the
Company's ILM technology could result in shareholder values in excess of the
pre-filing trading range of the Company's common stock could be unwarranted.
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
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various points in the Company's history, management believes utilization of the
Company's tax loss carryforwards and tax credit carryforwards may be limited.
The Company's international subsidiaries also have net operating tax loss
carryforwards in their respective foreign jurisdictions. However, as the Company
is in the process of liquidating its interests in both foreign subsidiaries as
of December 31, 1998, the Company does not anticipate that the foreign loss
carryforwards will ever be utilized.
Impact of Recent Accounting Pronouncements. In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 was originally required to be adopted in years beginning after June
15, 1999; however, SFAS No. 137 deferred the effective date to fiscal quarters
beginning after June 15, 2000. The Company expects to adopt SFAS No. 133
effective July 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 has assessed its
Y2K exposure and implemented a 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 has conducted a company-wide
assessment of its Business Systems to identify elements that are not Y2K
compliant. Based on the results of the assessment, the Company continues to
believe that the majority of its critical Business Systems, most of which have
been purchased and installed in recent years, are Y2K compliant. The Company's
internal Business Systems do not have internally generated programmed software
coding to correct, as substantially all of the software utilized by the Company
has been recently purchased or licensed from external vendors. The Company has
finalized the testing of its Business Systems that have been identified as
critical to the operations of the Company and noted no major areas of
non-compliance.
Those Business Systems which were initially identified as not being Y2K
compliant have been replaced, upgraded or modified in the normal replacement
cycle during the past nine months. The total cost to the Company of completing
the required modifications, upgrades, or replacements of its internal systems
was approximately $20,000. The Company does not believe these costs or the
remaining anticipated costs associated with its Y2K final testing plan have had
or will 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 also continues 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 or request certification or other assurances regarding 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.
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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 provides
assurances of the Y2K compliance of its products to customers at the time of
sale.
The Company has developed a preliminary contingency plan with respect to the Y2K
issue and intends to finalize such a plan during the fourth quarter 1999.
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
During 1998, the Company began revising its business plan to focus on its ILM
technology and essentially suspended activities related to its RIGS and ACT
initiatives pending identification of a development partner. To-date, a partner
for RIGS and ACT has not been secured. Until a partner is obtained and the
appropriate regulatory approvals are received, the Company is limited in its
ability to generate revenue from RIGS or ACT. The Company therefore intends to
continue to focus on further development of the ILM market in conjunction with
its new distribution partner, EES.
Research and development expenses during the first nine months of 1999 were
$892,000, or 11% of operating expenses. Marketing and selling expenses were $3.9
million, or 48% of operating expenses, and general and administrative expenses
were $2.9 million, or 36% of operating expenses. Overall, operating expenses for
the first nine months of 1999 decreased $13.1 million or 62% over the same
period in 1998. The Company anticipates that total operating expenses for the
remainder of 1999 will also decrease from 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 74% of
sales for the first nine months of 1999 from 99% of sales for the same period in
1998. The Company expects marketing and selling expenses for the remainder of
1999 to decrease from 1998 levels as a result of entering the distribution
agreement with EES.
Three months ended September 30, 1999 and 1998
Revenues and Margins. Net sales decreased $302,000 or 18% to $1.4 million during
the third quarter of 1999 from $1.7 million 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. Management believes the
decrease in instrument sales is due primarily to customer confidence issues
surrounding the continuing viability of the Company due to the going concern
opinion received during the second quarter and the delisting of the Company's
common stock during the third quarter. Management believes that these customer
confidence issues have been substantially addressed through the execution of the
global distribution agreement with EES. Gross margins decreased to 67% of net
sales in the third quarter of 1999 from 73% during the same period in 1998 due
to a higher proportion of sales made in 1999 under various distributor
arrangements that were not in place in 1998.
Research and Development Expenses. Research and development expenses decreased
$2.7 million or 97% to $78,000 during the third quarter of 1999 from $2.7
million during the same period in 1998. Over $2.0 million of the decrease can be
primarily attributed to 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. The remainder of
the decrease is due to development costs related to the neo2000(tm) that were
incurred in 1998, but for which similar costs were not incurred in 1999.
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Marketing and Selling Expenses. Marketing and selling expenses, excluding a
one-time $700,000 charge related to termination of the Company's agreement with
KOL, decreased $638,000 or 41% to $924,000 during the third quarter of 1999
compared to $1.6 million during the same period in 1998. Excluding the KOL
charge, marketing expenses, as a percentage of sales, decreased to 66% of sales
for the third quarter of 1999 from 92% of sales for the same period in 1998.
This decrease reflects lower internal marketing expense levels during the third
quarter of 1999 as compared to the same period in 1998, offset by increases in
marketing partner commissions over the same periods. Marketing expenses during
the third quarter of 1999 also included $150,000 in accrued severance charges
related to personnel to be severed in connection with the signing of the EES
Agreement.
General and Administrative Expenses. General and administrative expenses
decreased $179,000 or 14% to $1.1 million during the third quarter of 1999 from
$1.3 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. However, general and administrative expenses during the third
quarter of 1999 included $103,000 in accrued severance charges related to
personnel to be severed in connection with the signing of the EES Agreement.
Other Income. Other income increased $27,000 or 19% to $166,000 during the third
quarter of 1999 compared to $140,000 during the same period in 1998. Other
income during the third quarter of 1999 consisted primarily of one-time gains
from the settlement of certain previously recorded liabilities at less than
their original face value. Other income during the third quarter of 1998
consisted primarily of interest income. The Company's interest income declined
due to overall levels of investments during the third quarter of 1999 as
compared to the same period of 1998.
Losses related to subsidiaries in liquidation. The losses decreased $1.4 million
or 100% to $0 during the third quarter of 1999 from $1.4 million during the same
period in 1998. Losses in 1998 represent the reclassified costs of operating the
Company's two international subsidiaries related to the decision in the third
quarter of 1998 to shutdown and liquidate Neoprobe Europe and in the fourth
quarter of 1998 to shutdown and liquidate Neoprobe Israel.
Nine months ended September 30, 1999 and 1998
Revenues and Margins. Net sales increased $1.4 million or 37% to $5.2 million
during the first nine months of 1999 from $3.8 million 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. The increase in instrument
sales is the result of the introduction during the fourth quarter of 1998 of the
neo2000(TM) system and the continuing growth of the lymphatic mapping technique
offset by customer confidence issues regarding the Company's viability due
primarily to the going concern opinion issued by the Company's independent
accountants and the delisting of the Company's common stock. Gross margins
decreased to 67% of net sales in the first nine months of 1999 from 73% during
the same period in 1998 due to a higher proportion of sales made in 1999 under
various distributor arrangements that were not in place in 1998.
Research and Development Expenses. Research and development expenses decreased
$9.8 million or 92% to $892,000 during the first nine months of 1999 from $10.7
million during the same period in 1998. Approximately $5.9 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. The
remainder of the decrease is due to expenses incurred during the first nine
months of 1998 related to the neo2000 system and related devices which were
commercially launched during the fourth quarter of 1998. Expenses during the
first nine months of 1999 also included a non-cash write-off of approximately
$218,000 in capitalized pre-production written off as a result of recent
accounting recommendations issued by the EITF.
Marketing and Selling Expenses. Marketing and selling expenses, excluding a
one-time $700,000 charge related to termination of the Company's agreement with
KOL, decreased $599,000 or 16% to $3.2 million during the first nine months of
1999 compared to $3.8 million during the same period in 1998. Excluding the KOL
charge, marketing expenses, as a percentage of sales, decreased to 61% of sales
for the first nine months of 1999 from 99% of sales for the same period in 1998.
These results reflect lower internal marketing expense levels during the first
nine months of 1999 as compared to the same period in 1998, offset by increases
in marketing partner commissions over the
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same periods. Marketing expenses during the first nine months of 1999 also
included $150,000 in accrued severance charges related to personnel to be
severed in connection with the signing of the EES Agreement.
General and Administrative Expenses. General and administrative expenses
decreased $1.1 million or 28% to $2.9 million during the first nine months of
1999 from $4.0 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, offset by $103,000 in accrued severance
charges in 1999 related to personnel to be severed in connection with the
signing of the EES Agreement.
Other Income. Other income decreased $246,000 or 50% to $243,000 during the
first nine months of 1999 from $488,000 during the same period in 1998. Other
income during 1999 included $200,000 in one-time gains from the settlement of
certain previously recorded liabilities at less than their original face value
and interest income on the Company's investments. Other income during the first
nine months of 1998 consisted primarily of interest income. The Company's
interest income declined due to overall average levels of investments during the
first nine months of 1999 as compared to the same period of 1998.
Losses related to subsidiaries in liquidation. The losses decreased $2.3 million
or 83% to $475,000 during the first nine months of 1999 from $2.8 million during
the same period in 1998. During 1999, the losses relate to interest and other
overhead costs incurred during the wind-down process. Costs in 1998 represent
the reclassified costs of operating the Company's two international subsidiaries
related to the decision in the third quarter of 1998 to shutdown and liquidate
Neoprobe Europe and in the fourth quarter of 1998 to shutdown and liquidate
Neoprobe Israel.
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 September 30, 1999 and December
31, 1998, the Company had, excluding convertible preferred stock, outstanding
debt securities of $661,000 and $1.5 million respectively. These debt securities
consisted primarily of a variable rate line of credit and fixed rate financing
instruments, with average interest rates of 9.25% and 3.5% at September 30,
1999, respectively. At September 30, 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 nine months ended September 30, 1999.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company was a party to Della Jules Bryant v. Neoprobe Corporation
which was described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998. The Company and Ms. Bryant entered into a Settlement
and Release Agreement dated September 28, 1999 which ended the matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
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
19
<PAGE> 20
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).
10. MATERIAL CONTRACTS
Exhibit 10.2.51
Employment Agreement between the Registrant and David C. Bupp
dated July 1, 1999.
Page 25 in the manually signed original.
Exhibit 10.4.34
Revolving Credit Note between the Registrant and The Provident
Bank dated August 31, 1999.
Page 33 in the manually signed original.
Exhibit 10.4.35
Tennessee Revolving Credit Agreement between the Registrant
and The Provident Bank dated August 31, 1999.
Page 46 in the manually signed original.
Exhibit 10.4.36
Security Agreement between the Registrant and The Provident
Bank dated August 31, 1999.
Page 57 in the manually signed original.
Exhibit 10.4.37
Termination Agreement between the Registrant and Kol
Bio-Medical Instruments, Inc. dated September 30, 1999 (filed
pursuant to Rule 24b-2 under which the Registrant has
requested confidential treatment of certain portions of this
exhibit).
Page 70 in the manually signed original.
Exhibit 10.4.38
20
<PAGE> 21
Amendment to Termination Agreement between the Registrant and
Kol Bio-Medical Instruments, Inc. dated October 1, 1999 (filed
pursuant to Rule 24b-2 under which the Registrant has
requested confidential treatment of certain portions of this
exhibit).
Page 83 in the manually signed original.
Exhibit 10.4.39
Distribution Agreement between the Registrant and Ethicon
Endo-Surgery, Inc. dated October 1, 1999 (filed pursuant to
Rule 24b-2 under which the Registrant has requested
confidential treatment of certain portions of this exhibit).
Page 85 in the manually signed original.
11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Exhibit 11.1
Computation of Net Loss Per Share.
Page 133 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 third 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.
<TABLE>
<CAPTION>
NEOPROBE CORPORATION
<S> <C>
(the "Registrant")
Dated: November 12, 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 Administration
(principal financial and accounting officer)
</TABLE>
21
<PAGE> 22
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
NEOPROBE CORPORATION
------------------------------
FORM 10-Q QUARTERLY REPORT
FOR THE FISCAL QUARTER ENDED:
SEPTEMBER 30, 1999
------------------------------
EXHIBITS
------------------------------
<PAGE> 23
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 Continental Stock Transfer and Trust Company
dated February 16, 1999 (incorporated by reference to Exhibit
4.4 of the 1998 Form 10-K/A).
Exhibit 10.2.51
Employment Agreement between the Registrant and David C. Bupp
dated July 1, 1999.
Exhibit 10.4.34
Revolving Credit Note between the Registrant and The Provident
Bank dated August 31, 1999.
Exhibit 10.4.35
Tennessee Revolving Credit Agreement between the Registrant
and The Provident Bank dated August 31, 1999.
Exhibit 10.4.36
Security Agreement between the Registrant and The Provident
Bank dated August 31, 1999.
Exhibit 10.4.37
Termination Agreement between the Registrant and Kol
Bio-Medical Instruments, Inc. dated September 30, 1999 (filed
pursuant to Rule 24b-2 under which the Registrant has
requested confidential treatment of certain portions of this
exhibit).
Exhibit 10.4.38
Amendment to Termination Agreement between the Registrant and
Kol Bio-Medical Instruments, Inc. dated October 1, 1999 (filed
pursuant to Rule 24b-2 under which the Registrant has
requested confidential treatment of certain portions of this
exhibit).
Exhibit 10.4.39
Distribution Agreement between the Registrant and Ethicon
Endo-Surgery, Inc. dated October 1, 1999 (filed pursuant to
Rule 24b-2 under which the Registrant has requested
confidential treatment of certain portions of this exhibit).
Exhibit 11.1
<PAGE> 24
Computation of Net Loss Per Share.
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC
information only).
<PAGE> 1
EXHIBIT 10.2.51
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective as of July 1,
1999 ("Effective Date"), by and between NEOPROBE CORPORATION, a Delaware
Corporation with a place of business at 425 Metro Place North, Suite 300,
Dublin, Ohio 43017-1367 (the "Company") and DAVID C. BUPP of Dublin, Ohio (the
"Employee").
WHEREAS, the Company and the Employee entered into an Employment Agreement
dated as of January 1, 1996 (the "1996 Employment Agreement"); and
WHEREAS, the Company and the Employee entered into an Employment Agreement
dated as of January 1, 1998 (the "1998 Employment Agreement"); and
WHEREAS, the Company and the Employee wish to establish new terms,
covenants, and conditions for the Employee's continued employment with the
Company through this agreement ("Employment Agreement").
NOW, THEREFORE, in consideration of the mutual agreements herein set forth,
the parties hereto agree as follows:
1. DUTIES. From and after the Effective Date, and based upon the terms
and conditions set forth herein, the Company agrees to employ the
Employee and the Employee agrees to be employed by the Company, as
President and Chief Executive Officer of the Company and in such
equivalent, additional or higher executive level position or positions
as shall be assigned to him by the Board of Directors. While serving
in such executive level position or positions, the Employee shall
report to, be responsible to, and shall take direction from the Board
of Directors of the Company. The Board of Directors shall not require
the Employee to perform any task that is inconsistent with the office
of President or the position of Chief Executive Officer. During the
Term of this Employment Agreement (as defined in Section 2 below), the
Employee agrees to devote substantially all of his working time to the
position he holds with the Company and to faithfully, industriously,
and to the best of his ability, experience and talent, perform the
duties which are assigned to him. The Employee shall observe and abide
by the reasonable corporate policies and decisions of the Company in
all business matters.
The Employee represents and warrants to the Company that Exhibit A
attached hereto sets forth a true and complete list of (a) all
offices, directorships and other positions held by the Employee in
corporations and firms other than the Company and its subsidiaries and
(b) any investment or ownership interest in any corporation or firm
other than the Company beneficially owned by the Employee (excluding
investments in life insurance policies, bank deposits, publicly traded
securities that are less than five percent (5%) of their class and
real estate). The Employee will promptly notify the Board of Directors
of the Company of any additional positions undertaken or investments
made by the Employee during the Term of this Employment Agreement if
they are of a type which, if
-1-
<PAGE> 2
they had existed on the date hereof, should have been listed on
Exhibit A hereto. As long as the Employee's other positions or
investments in other firms do not create a conflict of interest,
violate the Employee's obligations under Section 7 below or cause the
Employee to neglect his duties hereunder, such activities and
positions shall not be deemed to be a breach of this Employment
Agreement.
2. TERM OF THIS EMPLOYMENT AGREEMENT. Subject to Sections 4 and 5 hereof,
the Term of this Employment Agreement shall be for a period of one (1)
year, commencing July 1, 1999 and terminating June 30, 2000.
3. COMPENSATION. During the Term of this Employment Agreement, the Company
shall pay, and the Employee agrees to accept as full consideration for
the services to be rendered by the Employee hereunder, compensation
consisting of the following:
A. SALARY. Beginning on the first day of the Term of this Employment
Agreement, the Company shall pay the Employee a salary of Two
Hundred Ninety Thousand Dollars ($290,000) per year, payable in
semi-monthly or monthly installments.
B. BONUS. The Compensation Committee of the Board of Directors will,
on an annual basis, review the performance of the Company and of
the Employee and will pay such bonus as it deems appropriate, in
its discretion, to the Employee based upon such review. Such
review and bonus shall be consistent with any bonus plan adopted
by the Compensation Committee which covers the executive officers
of the Company generally.
In addition to any such bonus the Company shall pay the Employee,
a bonus of Fifty Eight Thousand Dollars ($58,000) upon the
completion of the proposed distribution and license agreement
between the Company and Ethicon Endo-Surgery, Inc or any other
strategic alliance with Ethicon Endo Surgery, Inc. or anyone else
relating to the sale, licensing, marketing or use of the Company's
gamma guided surgery business, or any other action which results
in the Company being in substantially the same position, such as,
but not limited to, a settlement of a claim or enforcement of a
judgment against a party for breach of an agreement relating to
the sale, licensing, marketing or use of the Company's gamma
guided surgery business.
C. BENEFITS. During the Term of this Employment Agreement, the
Employee will receive such employee benefits as are generally
available to all employees of the Company.
D. STOCK OPTIONS. The Compensation Committee of the Board of
Directors may, from time to time, grant stock options, restricted
stock purchase opportunities and such other forms of stock based
incentive compensation as it deems appropriate, in its discretion,
to the Employee under the Company's Stock Option and Restricted
Stock Purchase Plan and the 1996 Stock Incentive Plan (the "Stock
Plans"). The terms of the relevant award agreements shall govern
the rights of the Employee and the Company thereunder in the event
of any conflict between such agreement and this Employment
Agreement.
-2-
<PAGE> 3
E. VACATION. The Employee shall be entitled to twenty (20) days of
vacation during each calendar year during the Term of this
Employment Agreement.
F. EXPENSES. The Company shall reimburse the Employee for all
reasonable out-of-pocket expenses incurred by him in the
performance of his duties hereunder, including expenses for
travel, entertainment and similar items, promptly after the
presentation by the Employee, from time to time, of an itemized
account of such expenses.
4. TERMINATION.
A. FOR CAUSE. The Company may terminate the employment of the
Employee prior to the end of the Term of this Employment Agreement
"for cause." Termination "for cause" shall be defined as a
termination by the Company of the employment of the Employee
occasioned by the failure by the Employee to cure a willful breach
of a material duty imposed on the Employee under this Employment
Agreement within 15 days after written notice thereof by the
Company or the continuation by the Employee after written notice
by the Company of a willful and continued neglect of a duty
imposed on the Employee under this Employment Agreement. In the
event of termination by the Company "for cause", all salary,
benefits and other payments shall cease at the time of
termination, and the Company shall have no further obligations to
the Employee.
B. RESIGNATION. If, the Employee resigns for any reason, all salary,
benefits and other payments (except as otherwise provided in
paragraph G of this Section 4 below) shall cease at the time such
resignation becomes effective. At the time of any such resignation
the Company shall pay the Employee, the value of any accrued but
unused vacation time, and the amount of all accrued but previously
unpaid base salary through the date of such termination. The
Company shall promptly reimburse the Employee for the amount of
any expenses incurred prior to such termination by the Employee as
required under paragraph F of Section 3 above.
C. DISABILITY, DEATH. The Company may terminate the employment of the
Employee prior to the end of the Term of this Employment Agreement
if the Employee has been unable to perform his duties hereunder
for a continuous period of six (6) months due to a physical or
mental condition that, in the opinion of a licensed physician,
will be of indefinite duration or is without a reasonable
probability of recovery. The Employee agrees to submit to an
examination by a licensed physician of his choice in order to
obtain such opinion at the request of the Company, made after the
Employee has been absent from his place of employment for at least
six (6) months. Such examination shall be paid for by the Company.
However, this provision does not abrogate either the Company's or
the Employee's rights and obligations pursuant to the Family and
Medical Leave Act of 1993, and a termination of employment under
this paragraph C shall not be deemed to be a termination for
cause.
If during the Term of this Employment Agreement, the Employee dies
or his employment is terminated because of his disability, all
salary, benefits and other
-3-
<PAGE> 4
payments shall cease at the time of death or disability, provided,
however, that the Company shall provide such health, dental and
similar insurance or benefits as were provided to Employee
immediately before his termination by reason of death or
disability, to Employee or his family for the longer of six (6)
months after such termination or the full unexpired Term of this
Employment Agreement on the same terms and conditions (including
cost) as were applicable before such termination. In addition, for
the first six (6) months of disability, the Company shall pay to
the Employee the difference, if any, between any cash benefits
received by the Employee from a Company-sponsored disability
insurance policy and the Employee's salary hereunder. At the time
of any such termination the Company shall pay the Employee, the
value of any accrued but unused vacation time, and the amount of
all accrued but previously unpaid base salary through the date of
such termination. The Company shall promptly reimburse the
Employee for the amount of any expenses incurred prior to such
termination by the Employee as required under paragraph F of
Section 3 above.
D. TERMINATION WITHOUT CAUSE. A termination without cause is a
termination of the employment of the Employee by the Company that
is not "for cause" and not occasioned by the resignation, death or
disability of the Employee. If the Company terminates the
employment of the Employee without cause, (whether before the end
of the Term of this Employment Agreement or, if the Employee is
employed by the Company under paragraph E of this Section 4 above,
after the Term of this Employment Agreement has ended) the Company
shall, at the time of such termination, pay to the Employee the
severance payment provided in paragraph F of this Section 4 below
together with the value of any accrued but unused vacation time
and the amount of all accrued but previously unpaid base salary
through the date of such termination and shall provide him with
all of his benefits under paragraph C of Section 3 above for the
longer of six (6) months or the full unexpired Term of this
Employment Agreement. The Company shall promptly reimburse the
Employee for the amount of any expenses incurred prior to such
termination by the Employee as required under paragraph F of
Section 3 above.
If the Company terminates the employment of the Employee because
it has ceased to do business or substantially completed the
liquidation of its assets or because it has relocated to another
city and the Employee has decided not to relocate also, such
termination of employment shall be deemed to be without cause.
E. END OF THE TERM OF THIS EMPLOYMENT AGREEMENT. Except as otherwise
provided in paragraphs F and G of this Section 4 below, the
Company may terminate the employment of the Employee at the end of
the Term of this Employment Agreement without any liability on the
part of the Company to the Employee but, if the Employee continues
to be an employee of the Company after the Term of this Employment
Agreement ends, his employment shall be governed by the terms and
conditions of this Agreement, but he shall be an employee at will
and his employment may be terminated at any time by either the
Company or the Employee without notice and for any reason not
prohibited by law or no reason at all. If the Company terminates
the employment of the Employee at the end of the Term of this
Employment Agreement, the Company shall, at the time of such
termination, pay to
-4-
<PAGE> 5
the Employee the severance payment provided in paragraph F of this
Section 4 below together with the value of any accrued but unused
vacation time and the amount of all accrued but previously unpaid
base salary through the date of such termination. The Company
shall promptly reimburse the Employee for the amount of any
reasonable expenses incurred prior to such termination by the
Employee as required under paragraph F of Section 3 above.
F. SEVERANCE. If the employment of the Employee is terminated by the
Company, at the end of the Term of this Employment Agreement or,
without cause (whether before the end of the Term of this
Employment Agreement or, if the Employee is employed by the
Company under paragraph E of this Section 4 above, after the Term
of this Employment Agreement has ended), the Employee shall be
paid, as a severance payment at the time of such termination, the
amount of Three Hundred Forty Five Thousand Seven Hundred Seventy
Dollars ($345,770). If any such termination occurs at or after the
substantial completion of the liquidation of the assets of the
Company, the severance payment shall be increased by adding
Seventy Two Thousand Five Hundred Dollars ($72,500) to such
amount.
G. CHANGE OF CONTROL SEVERANCE. In addition to the rights of the
Employee under the Company's employee benefit plans (paragraphs C
of Section 3 above) but in lieu of any severance payment under
paragraph F of this Section 4 above, if there is a Change in
Control of the Company (as defined below) and the employment of
the Employee is concurrently or subsequently terminated (a) by the
Company without cause, (b) by the expiration of the Term of this
Employment Agreement, or (c) by the resignation of the Employee
because he has reasonably determined in good faith that his
titles, authorities, responsibilities, salary, bonus opportunities
or benefits have been materially diminished, that a material
adverse change in his working conditions has occurred, that his
services are no longer required in light of the Company's business
plan, or the Company has breached this Employment Agreement, the
Company shall pay the Employee, as a severance payment, at the
time of such termination, the amount of Six Hundred Thirty Five
Thousand Seven Hundred Seventy Dollars ($635,770) together with
the value of any accrued but unused vacation time, and the amount
of all accrued but previously unpaid base salary through the date
of such termination and shall provide him with all of his benefits
under paragraph C of Section 3 above for the longer of six (6)
months or the full unexpired Term of this Employment Agreement. If
any such termination is occurs at or after the substantial
completion of the liquidation of the assets of the Company, the
severance payment shall be increased by adding Seventy Two
Thousand Five Hundred Dollars ($72,500) to such amount. The
Company shall promptly reimburse the Employee for the amount of
any expenses incurred prior to such termination by the Employee as
required under paragraph F of Section 3 above.
For the purpose of this Employment Agreement, a Change in Control
of the Company has occurred when: (a) any person (defined for the
purposes of this paragraph G to mean any person within the meaning
of Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")), other than Neoprobe or an employee benefit plan
created by its Board of Directors for the benefit of its
employees, either directly or indirectly, acquires beneficial
ownership (determined
-5-
<PAGE> 6
under Rule 13d-3 of the Regulations promulgated by the Securities
and Exchange Commission under Section 13(d) of the Exchange Act)
of securities issued by Neoprobe having fifteen percent (15%) or
more of the voting power of all the voting securities issued by
Neoprobe in the election of Directors at the next meeting of the
holders of voting securities to be held for such purpose; (b) a
majority of the Directors elected at any meeting of the holders of
voting securities of Neoprobe are persons who were not nominated
for such election by the Board of Directors or a duly constituted
committee of the Board of Directors having authority in such
matters; (c) the stockholders of Neoprobe approve a merger or
consolidation of Neoprobe with another person, other than a merger
or consolidation in which the holders of Neoprobe's voting
securities issued and outstanding immediately before such merger
or consolidation continue to hold voting securities in the
surviving or resulting corporation (in the same relative
proportions to each other as existed before such event) comprising
eighty percent (80%) or more of the voting power for all purposes
of the surviving or resulting corporation; or (d) the stockholders
of Neoprobe approve a transfer of substantially all of the assets
of Neoprobe to another person other than a transfer to a
transferee, eighty percent (80%) or more of the voting power of
which is owned or controlled by Neoprobe or by the holders of
Neoprobe's voting securities issued and outstanding immediately
before such transfer in the same relative proportions to each
other as existed before such event. The parties hereto agree that
for the purpose of determining the time when a Change of Control
has occurred that if any transaction results from a definite
proposal that was made before the end of the Term of this
Employment Agreement and which was the subject of negotiations
that began during the Term of this Employment Agreement but which
continued until after the end of the Term of this Employment
Agreement and such transaction is consummated after the end of the
Term of this Employment Agreement, such transaction shall be
deemed to have occurred when the definite proposal was made for
the purposes of the first sentence of this paragraph G of this
Section 4.
H. BENEFIT AND STOCK PLANS. In the event that a benefit plan or Stock
Plan which covers the Employee has specific provisions concerning
termination of employment, or the death or disability of an
employee (e.g., life insurance or disability insurance), then such
benefit plan or Stock Plan shall control the disposition of the
benefits or stock options.
5. PROPRIETARY INFORMATION AGREEMENT. Employee has executed a Proprietary
Information Agreement as a condition of employment with the Company.
The Proprietary Information Agreement shall not be limited by this
Employment Agreement in any manner, and the Employee shall act in
accordance with the provisions of the Proprietary Information Agreement
at all times during the Term of this Employment Agreement.
-6-
<PAGE> 7
6. NON-COMPETITION. Employee agrees that for so long as he is employed by
the Company under this Employment Agreement and for two (2) years
thereafter, the Employee will not:
A. enter into the employ of or render any services to any person,
firm, or corporation, which is engaged, in any part, in a
Competitive Business (as defined below);
B. engage in any Competitive Business for his own account;
C. become associated with or interested in through retention or by
employment any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent,
employee, trustee, consultant, advisor, or in any other
relationship or capacity; or
D. solicit, interfere with, or endeavor to entice away from the
Company, any of its customers, strategic partners, or sources of
supply.
Nothing in this Employment Agreement shall preclude Employee from
taking employment in the banking or related financial services
industries nor from investing his personal assets in the securities of
any Competitive Business if such securities are traded on a national
stock exchange or in the over-the-counter market and if such investment
does not result in his beneficially owning, at any time, more than one
percent (1%) of the publicly-traded equity securities of such
Competitive Business. "Competitive Business" for purposes of this
Employment Agreement shall mean any business or enterprise which:
a. is engaged in the development and/or commercialization of products
and/or systems for use in (1) the intraoperative detection of
cancer and/or (2) Activated Cellular Therapy for cancer, or
b. reasonably understood to be competitive in the relevant market
with products and/or systems described in clause a above, or
c. the Company engages in during the Term of this Employment
Agreement pursuant to a determination of the Board of Directors
and from which the Company derives a material amount of revenue or
in which the Company has made a material capital investment.
The covenant set forth in this Section 6 shall terminate immediately
upon the substantial completion of the liquidation of the assets of the
Company or the termination of the employment of the Employee by the
Company without cause or at the end of the Term of this Employment
Agreement.
7. ARBITRATION. Any dispute or controversy arising under or in connection
with this Employment Agreement shall be settled exclusively by
arbitration in Columbus, Ohio, in accordance with the nonunion
employment arbitration rules of the American Arbitration Association
("AAA") then in effect. If specific nonunion employment dispute rules
are not in effect, then AAA commercial arbitration rules shall govern
the
-7-
<PAGE> 8
dispute. If the amount claimed exceeds $100,000, the arbitration shall
be before a panel of three arbitrators. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Company shall
indemnify the Employee against, and hold him harmless from, any
attorney's fees, court costs and other expenses incurred by the
Employee in connection with the preparation, commencement, prosecution,
defense or enforcement of any arbitration, award, confirmation or
judgment in order to assert or defend any right or obtain any payment
under paragraph G of Section 4 above or under this sentence; without
regard to the success of the Employee or his attorney in any such
arbitration or proceeding.
8. GOVERNING LAW. The Employment Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
9. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Employment Agreement shall not affect the validity
or enforceability of any other provision of the Employment Agreement,
which shall remain in full force and effect.
10. ENTIRE AGREEMENT.
A. The 1998 Employment Agreement is terminated as of the effective
date of this Employment Agreement, except that the Stock Options
granted to the Employee in the 1998 Employment Agreement or in any
previous employment agreement or by the Compensation Committee
remain in full force and effect, and survive the termination of
the 1998 Employment Agreement and except that the bonus
opportunities granted to the Employee in paragraph 3 of the letter
agreement dated February 16, 1995 remain in full force and effect,
and survive the termination of the 1998 Employment Agreement.
B. This Employment Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions, and preliminary
agreements. This Employment Agreement may not be amended except in
writing executed by the parties hereto.
11. EFFECT ON SUCCESSORS OF INTEREST. This Employment Agreement shall inure
to the benefit of and be binding upon heirs, administrators, executors,
successors and assigns of each of the parties hereto. Notwithstanding
the above, the Employee recognizes and agrees that his obligation under
this Employment Agreement may not be assigned without the consent of
the Company.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Employment Agreement as of the date first written above.
NEOPROBE CORPORATION EMPLOYEE
By: /s/ Brent L. Larson /s/ David C. Bupp
-------------------------------------- --------------------------------
Brent L. Larson, Vice President David C. Bupp
-8-
<PAGE> 1
EXHIBIT 10.4.34
REVOLVING CREDIT NOTE
================================================================================
COLUMBUS, OHIO
$400,000 AUGUST 31, 1999
================================================================================
FOR VALUE RECEIVED, the undersigned, NEOPROBE CORPORATION, a Delaware
corporation, whose address is 425 Metro Place North, Suite 400, Dublin, Ohio
43017 (the "Borrower"), hereby promises to pay to the order of THE PROVIDENT
BANK, an Ohio banking corporation (the "Bank"), on or before December 31, 1999
(the "Maturity Date"), the principal sum of Four Hundred Thousand Dollars
($400,000) or, if such principal is less, the aggregate unpaid principal amount
of all loans made by the Bank to the Borrower pursuant to this Revolving Credit
Note (the "Revolving Credit Commitment"), together with interest, all as
provided in Section 1 of this Note.
SECTION 1. THE DEBT. Subject to and on the terms and conditions set
forth in this Note, the Bank shall provide loans and the Borrower shall repay
the indebtedness incurred hereunder as follows:
1.1. REVOLVING CREDIT LOANS. During the period from and
including the date hereof to but excluding the Maturity Date, the Bank agrees,
on the terms and conditions set forth in this Agreement, to make one or more
loans ("Revolving Credit Loans") to the Borrower in an aggregate principal
amount at any one time outstanding up to but not exceeding the greater of (a)
the Revolving Credit Commitment or (b) the Borrowing Base (as defined in Section
7.15 hereof). Subject to the terms of this Note, during such period, the
Borrower may borrow, repay and reborrow the amount of the Revolving Credit
Commitment by means of Revolving Credit Loans. The date, amount, and interest
rate of each Revolving Credit Loan made by the Bank to the Borrower, and each
payment made on account of the principal thereof, shall be recorded by the Bank
on its books and records, such recordation to constitute conclusive evidence in
the absence of manifest error of the amount of such Loans and payments.
1.2. BORROWING PROCEDURE. The Borrower shall give the Bank
notice not later than 10:00 a.m on the date of each Revolving Loan, specifying:
1.2.1. The date of such Loan, which shall be a
Banking Day; and
1.2.2. The aggregate amount of the Revolving Credit
Loan.
The proceeds of the initial Revolving Credit Loan (in the amount of $353,000)
shall be distributed to the Borrower to finance payments made by the Borrower to
vendors involved in the development of products described in Section 1.6 below.
The Borrower shall forward to the Bank proof of payment to such vendors pursuant
to Section 1.7 below. The proceeds of each subsequent Revolving Credit Loan
shall be forwarded by the Bank directly to specific vendors to pay amounts the
Borrower currently owes to such vendors. The vendors who receive proceeds of
<PAGE> 2
such Revolving Credit Loans shall be those vendors who are necessary to support
the development of products described in Section 1.6 below.
1.3. PRINCIPAL. The Borrower shall pay the principal balance
of this Note to the Bank on or before the Maturity Date.
1.4. INTEREST.
1.4.1. The Debt shall bear interest on the
outstanding principal amount, for each day at a per annum rate equal to the rate
of interest for such day publicly announced by the Bank as its prime rate (the
"Prime Rate") plus one hundred (100) basis points. The Prime Rate is not
intended to be the lowest rate of interest charged by the Bank in connection
with extensions of credit for borrowers. Interest on the Debt shall be paid by
the Borrower (a) on the last day of each calendar month, commencing September
30, 1999, (b) on the Maturity Date and (c) thereafter on demand.
1.4.2. All interest under this Note shall be computed
on the basis of the actual days elapsed in a year of 360 days.
1.5. PREPAYMENTS; PAYMENTS.
1.5.1. The Borrower shall have the right to make
prepayments at any time of the principal amount of the Debt, in whole or in
part, without notice. Each prepayment shall be without premium or penalty.
Subject to the terms and provisions of this Note, the Bank will reloan to the
Borrower such amounts as have been paid and applied on the principal balance of
a Revolving Credit Loan prepaid pursuant to this Section.
1.5.2. The Borrower shall make all payments of
principal and interest under this Note to the Bank at its main office (or such
other location as the Bank may direct) in immediately available funds. If any
payment of principal or interest on this Note shall become due on a day other
than a Banking Day, such payment shall be due and payable upon the next
succeeding Banking Day and such extension of time shall in such case be included
in computing interest in connection with such payment. A "Banking Day" is any
day on which the main office of the Bank is open for business.
1.6. PURPOSE. The purpose of the Revolving Credit Loans
represented by this Note is to support the development between the Borrower and
Ethicon Endo Surgery, Inc. ("EES") by providing working capital for the
manufacture of units outlined in an EES purchase order for $1,868,000.
1.7. CONDITION PRECEDENT. As a condition precedent to making
the first Revolving Credit Loan hereunder, the Borrower must:
1.7.1. deliver to the Bank the EES purchase order;
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1.7.2. set up its operating bank accounts with the
Bank within 60 days after EES issues the purchase order;
1.7.3. proof of payment to vendors of $353,000;
1.7.4. open a lockbox with the Bank within 60 days
after EES issues the purchase order for the receipt of all payments received
from EES, and direct EES to make all payments to such lockbox; and
1.7.5. have all liens on the personal property of
the Borrower subject to the Security Agreement described in Section 4 below
either released or subordinated to the satisfaction of the Bank.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The execution of this Note
by the Borrower shall be deemed to constitute the Borrower's representation and
warranty to the Bank that, at the time of execution and at the time of
disbursement of each Revolving Credit Loan hereunder: (a) this Note and the
Security Agreement (as defined in Section 4 hereof) are the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their terms; (b) the Security Agreement creates a valid lien of
the Bank in the collateral thereof, prior to the claims of any other person or
entity; (c) the execution and delivery of this Note and the Security Agreement
by the Borrower do not and will not conflict with, violate or constitute a
default under or breach of any court or administrative order, decree or ruling,
or any law, statute, ordinance or regulation, or any agreement, indenture,
mortgage, deed of trust, guaranty, lease, note or other obligation or instrument
binding upon the Borrower or any of its respective properties or assets; and (d)
neither this Note nor any other statement, assignment, agreement, instrument or
certificate of the Borrower made or delivered pursuant to or in connection with
this Note contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein, in light of the circumstances under
which they were made, or necessary to make the statements therein not
misleading.
SECTION 3. COVENANTS.
3.1. COMPLIANCE WITH LAWS. On and after the date hereof and
until the Debt shall have been repaid and discharged in full or otherwise
satisfied, the Borrower shall comply with all applicable laws.
3.2. FURNISHING OF FINANCIAL STATEMENTS AND OTHER
INFORMATION.
3.2.1. The Borrower shall furnish to the Bank as
soon as practicable after the end of each of the month in each fiscal year of
the Borrower, and in any event within 30 days thereafter, complete internally
prepared financial statements (the "Financial Statements") of the Borrower,
including without limitation (a) a balance sheet of the Borrower as at the end
of such month, (b) a statement of operations of the Borrower for such month and
(c) a statement of cash flows of the Borrower for such month. All such Financial
Statements shall be in reasonable detail and certified by the Treasurer or
Controller of the Borrower as having been prepared in accordance with GAAP
(except as to footnotes and subject to year-end adjustments), as being
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true, accurate, complete and correct in all material respects, and as presenting
fairly the financial position of the Borrower as at the respective date of such
balance sheet and the results of operations of the Borrower for the respective
period covered.
3.2.2. The Borrower shall furnish to the Bank as
soon as practicable after the end of each fiscal year of the Borrower, and in
any event within 90 days thereafter, complete audited Financial Statements of
the Borrower including without limitation (a) a balance sheet of each as at the
end of such fiscal year, (b) a statement of operations of each for such fiscal
year, (c) a statement of shareholders' equity of each for such fiscal year, and
(d) a statement of cash flows of each for such fiscal year, together with
comparative figures for the previous fiscal year, all in reasonable detail. The
balance sheets and statements shall be audited in form and substance
satisfactory to the Bank by independent certified public accountants of
recognized standing acceptable to the Bank.
5.2.3. The Borrower will furnish to the Bank as
soon as practicable after the end of each calendar month, and in any event
within 15 days thereafter, an Accounts aging report in a format acceptable to
the Bank and a Borrowing Base Certificate for such month. During the occurrence
of an Event of Default, the Borrower shall be required to deliver aging
schedules, trial balances, test verifications of Accounts and other reports
reasonably requested by the Bank.
SECTION 4. SECURITY FOR DEBT. This Note is secured by and entitled to
(a) a Security Agreement dated as of the date hereof, made by the Borrower for
the benefit of the Bank (the "Security Agreement") and (b) UCC-1 financing
statements filed with the Ohio Secretary of State and the Franklin county
Recorder, each dated as of the date hereof, as any of the above may be further
amended or modified from time to time. Nothing contained in this Note, the
Security Agreement, or in any other document or instrument made in connection
herewith, shall be deemed or construed to create a partnership,
tenancy-in-common, joint tenancy, joint venture or co-ownership by or between
the Bank and the Borrower. The Bank shall not be in any way responsible for the
debts, losses, obligations or duties of the Borrower.
SECTION 5. EVENTS OF DEFAULT. The following are Events of Default:
5.1. The Borrower fails to make a payment of interest on the
Note when and as due.
5.2. The Borrower fails to pay the principal of the Note when
and as due.
5.3. The Borrower fails to make a payment of any fee, expense
or other amount of money (not including the principal of or interest on the
Note) owing to the Bank under this Note when and as due and such failure is not
remedied within 10 Banking Days after the due date.
5.4. Any representation or warranty made by the Borrower in
this Note or any information contained in the Security Agreement, any
certificate, report, financial statement or other document delivered to the Bank
by the Borrower contains any untrue statement of a material fact or omits to
state a material fact required by this Note or law to be stated therein or
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<PAGE> 5
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.5. The Borrower fails to perform any of its obligations
under or fails to comply with any covenant contained in the Note and such
failure continues unremedied for a period of ten Banking Days.
5.6. Any governmental body or officer or creditor of the
Borrower seizes, takes possession of or collects (whether or not the Borrower
resists or acquiesces in such seizure, taking or collection) any property of the
Borrower by any means, including, without limitation, execution, levy,
sequestration, attachment, garnishment, replevin or self-help, unless such
seizure, taking or collection is vacated or the property is discharged within 30
days after the occurrence thereof.
5.7. One or more final judgments are entered against the
Borrower for the payment of money aggregating in excess of $50,000 and any one
of such judgments has been outstanding for more than 30 days from the date of
its entry and has not been discharged in full or stayed pending appeal.
5.8. The Borrower:
5.8.1. makes an assignment for the benefit of
creditors;
5.8.2. enters into any composition, compromise or
arrangement with its creditors;
5.8.3. generally does not pay its debts as such
debts become due; or
5.8.4. conceals, removes, or permits to be
concealed or removed, any part of its or his property, with intent to hinder,
delay or defraud its or his creditors or any of them, or makes or suffers a
transfer of any of its property, fraudulent under the provisions of any
bankruptcy, fraudulent conveyance or similar law, or makes or suffers a transfer
of its property to or for the benefit of a creditor at a time when other
creditors similarly situated have not been paid.
5.9. If:
5.9.1. a trustee, receiver, agent or custodian is
appointed or authorized to take charge of any property of the Borrower for the
purpose of enforcing a lien against such property or for the purpose of
administering such property for the benefit of the Borrower's creditors; or
5.9.2. an order (a) for relief against the Borrower
is granted under Title 11 of the United States Code or any similar law, (b)
appointing a receiver, trustee, agent or custodian of the Borrower or any
property of the Borrower or (c) providing for a composition,
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<PAGE> 6
compromise or arrangement with the creditors of the Borrower is entered by any
court or governmental body or officer; or
5.9.3. the Borrower files any pleading seeking
(whether by formal action or by the admission of the material allegations of a
pleading or otherwise) any such appointment or order; or
5.9.4. (a) any action or proceeding seeking any such
appointment or order is commenced without the authority or consent of the
Borrower and (b)(i) such action or proceeding is not dismissed within 90 days
after its commencement or (ii) the Borrower does not diligently contest such
action or proceeding.
5.10. An Event of Default occurs under the Security Agreement.
5.11. Except for the events that exist on the date this Note
is executed as disclosed on Schedule 5.11 hereto, the Borrower fails to pay when
and as due the principal of or any interest on any Indebtedness (as defined
below), other than as evidenced by this Note or the Security Documents (assuming
that all required notices have been properly given and all corresponding grace
periods, if any, have elapsed without cure by the Borrower) or any other event
exists which, under the terms of any agreement or instrument other than the Note
or the Security Documents, relates to any Indebtedness becoming, or becoming
capable at such time of being declared, due and payable before it would
otherwise have been due and payable. "Indebtedness" means, for the Borrower (a)
all indebtedness or other obligations of the Borrower for borrowed money or for
the deferred purchase price of property or services (except for unsecured trade
payables incurred in the ordinary course of business on normal and reasonable
terms), (b) all indebtedness or other obligations of any other person for
borrowed money or for the deferred purchase price of property or services, the
payment or collection of which the Borrower has guaranteed (except by reason of
endorsement for deposit or collection in the ordinary course of business) or in
respect of which the Borrower is liable, contingently or otherwise, including,
without limitation, liable by way of agreement to purchase, to provide funds for
payment, to supply funds to or otherwise to invest in such other person, or
otherwise to assure a creditor against loss, (c) all indebtedness or other
obligations of any other person for borrowed money or for the deferred purchase
price of property or services secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien upon or in property (including, without limitation, accounts and
contract rights) owned by the Borrower whether or not the Borrower has assumed
or become liable for the payment of such indebtedness or other obligations, (d)
all direct or contingent obligations of the Borrower in respect of letters of
credit and (e) all lease obligations which have been or should be, in accordance
with generally accepted accounting principles, capitalized on the books of the
Borrower as lessee.
SECTION 6. DEFAULT REMEDIES.
6.1. ACCELERATION. If an Event of Default exists, the
outstanding unpaid principal balance of this Note, together with all interest
accrued hereon is immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby waived.
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6.2. SET-OFF. Any and all moneys now or at any time hereafter
owing to the Borrower from the Bank, and all other funds on deposit in one or
more checking accounts with the Bank for the benefit of the Borrower, are hereby
pledged for the security of this and all other indebtedness from the Borrower to
the Bank or any legal holder hereof, and may, upon any demand for payment, be
paid and applied thereon whether such indebtedness be then due or to become due,
all without notice to or demand on the Borrower or any other person, all such
notices and demands being hereby expressly waived. If an Event of Default
exists, the Bank shall have the right, in addition to all other rights and
remedies available to it, to set-off against the principal of and interest on
this Note and any fees, expenses or other amounts owed to the Bank under this
Note (a) all amounts owing to the Borrower by the Bank, whether or not then due
and payable, and (b) all other funds or property of the Borrower (i) in a
deposit account (general or special) maintained with the Bank, or (ii) on
deposit with or otherwise held by or in the custody of the Bank for the
beneficial account of the Borrower, whether solely in the name of or for the
benefit of the Borrower or jointly in the name of or for the benefit of the
Borrower and any other person, all without notice to or demand on the Borrower
or any other person, all such notices and demands being hereby expressly waived.
The Bank will notify the Borrower of any such set-off promptly after its
occurrence, but the failure to give such notice shall not affect the validity of
the set-off. The Borrower hereby confirms the Bank's right of banker's set-off
(also known as banker's lien) as it applies to the Borrower as set forth above,
and nothing in this Note shall be deemed a waiver or prohibition of such right
of banker's set-off.
6.3. REMEDIES CUMULATIVE. The Bank may exercise the remedies
provided in the Pledge Agreement upon the occurrence of an Event of Default. No
right or remedy conferred upon the Bank by this Note or legally available to the
Bank if an Event of Default exists is intended to be exclusive of any other
right or remedy, and each such right or remedy is cumulative and in addition to
every other such right or remedy.
6.4. FORCE MAJEURE. The existence of an Event of Default is
not affected by the reason for its occurrence, even if the Event of Default was
not caused by a voluntary act of the Borrower or was caused by a natural
disaster or force majeure.
SECTION 7. MISCELLANEOUS.
7.1. MODIFICATIONS AND WAIVERS. No modification or waiver of
any term or provision contained in this Note and no consent to any departure by
the Borrower therefrom shall in any event be effective unless the same is in
writing and signed by the waiving party. Such waiver or consent shall be
effective only in the specific instance and for the purpose for which it is
given.
7.2. NOTICES. Except where specific provisions of this Note
provide for some other form of notice or require receipt as a condition of
notice, any consent, waiver, notice, demand or other instrument required or
permitted to be given under this Note shall be deemed to have been properly
received when in writing and delivered in person or sent by certified or
registered United States mail, return receipt requested, postage prepaid,
addressed, if to the Borrower: 425 Metro Place North, Suite 300, Dublin, Ohio
43017, Attention: Brent Larson; and
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if to the Bank: 10 West Broad Street, Mezzanine Level, Columbus, Ohio 43287,
Attention: Michael D. Davis. Either party may change its address for notices by
notice in the manner set forth above.
7.3. PARTIAL INVALIDITY. If any term or provision of this Note
or the application thereof to any person, firm or corporation or any
circumstance, shall be invalid or unenforceable, the remainder of this Note, or
the application of such term or provision to any person, firm or corporation or
any circumstances, other than those as to which it is held invalid, shall both
be unaffected thereby and each term or provision of this Note shall be valid and
be enforced to the fullest extent permitted by law.
7.4. NO IMPLIED RIGHTS OR WAIVERS. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in the same, similar or other circumstances. Neither any
failure nor any delay on the part of the Bank in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of the same or
the exercise of any other right, power or privilege. The Borrower hereby waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note.
7.5. SUCCESSORS AND ASSIGNS. This Note shall be binding upon
and inure to the benefit of the respective heirs, successors and assigns of the
Bank and the Borrower; provided that the Borrower shall have no right to assign
or transfer its rights under this Note voluntarily or by operation of law
without first obtaining the written consent of the Bank, and any attempted
assignment or transfer in the absence of such consent shall be void and of no
effect.
7.6. EXPENSES. All fees, costs and expenses, including
reasonable fees and expenses of outside legal counsel, incurred by the Bank in
connection with the preparation and enforcement of this Note or any other
instruments, documents, or agreements to be delivered pursuant hereto or in
connection herewith, shall be paid by the Borrower to the Bank on demand.
7.7. SURVIVAL OF PROVISIONS. All covenants, agreements,
representations, warranties and statements made in this Note or in any
certificate, statement, or other instrument given pursuant to this Note shall
survive the execution and delivery to the Bank of this Note and the making of
the Debt and shall continue in full force and effect so long as any obligation
of the Borrower under this Note is outstanding and unpaid.
7.8. CAPTIONS. The captions and section numbers appearing in
this Note are inserted only as a matter of convenience; they do not define,
limit, construe or describe the scope or intent of the provisions of this Note.
7.9. GOVERNING LAW. This Note shall be governed and construed
by the provisions hereof and in accordance with the laws of the State of Ohio
applicable to instruments to be performed in the State of Ohio.
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7.10. CONSENT. The Borrower hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Ohio and of the United States of America located in the City of
Columbus, Ohio for any actions, suits or proceedings arising out of or relating
to this Note and the transactions contemplated hereby (and the Borrower agrees
not to commence any action, suit or proceeding relating thereto except in such
courts), and further agrees that service of any process, summons, notice or
document by U.S. certified or registered mail, return receipt requested, to the
address set forth in Section 7.2 shall be effective service of process for any
action, suit or proceeding brought against the Borrower in any such court. The
Borrower hereby irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Note, or
the transactions contemplated hereby, in the courts of the State of Ohio or the
United States of America located in the City of Columbus, Ohio, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
7.11. JOINT PREPARATION. This Note is to be deemed to have
been prepared jointly by the Borrower and the Bank, and any uncertainty or
ambiguity existing herein shall not be interpreted against either party, but
shall be interpreted according to the rules for the interpretation of arm's
length agreements.
7.12. THIRD PARTIES. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person other than the
parties hereto and their successors or assigns, any rights or remedies under or
by reason of this Note.
7.13. CONFESSION OF JUDGMENT. The Borrower hereby authorizes
any attorney at law to appear for the Borrower, in an action on this Note, at
any time after the same become due, as herein provided, in any court of record
in or of the State of Ohio, or elsewhere, to waive the issuing and service of
process against the Borrower and to confess judgment in favor of the holder of
the this Note or the party entitled to the benefits hereof against the Borrower
for the amount that may be due, with interest at the rate herein mentioned and
costs of suit, and to waive and release all errors in said proceedings and
judgment, and all petitions in error, and right of appeal from the judgment
rendered.
7.14. WAIVER OF JURY TRIAL. THE BANK AND THE BORROWER HEREBY
VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN THE BANK AND THE BORROWER ARISING OUT OF, IN CONNECTION WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE BORROWER
AND THE BANK IN CONNECTION WITH THIS NOTE, THE SECURITY DOCUMENTS, OR ANY OTHER
AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH
OR THE TRANSACTIONS RELATED HERETO OR THERETO. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE BANK TO ENTER INTO THE FINANCING TRANSACTIONS WITH THE
BORROWER. IT SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY THE
BANK'S ABILITY TO PURSUE ITS REMEDIES INCLUDING, BUT NOT LIMITED TO, ANY
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CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN THIS NOTE, THE
SECURITY DOCUMENTS OR ANY OTHER DOCUMENT RELATED HERETO OR THERETO.
7.15. DEFINITIONS. As used in this Note, the following terms
shall have the meanings set forth below. Additional defined terms appear
elsewhere in this Note:
"Account" means and includes all accounts (whether or not
earned by performance), contract rights, chattel paper, instruments, documents,
general intangibles (including, without limitation, tax refunds and tax refund
claims) and all other forms of obligations owing to the Borrower, whether
secured or unsecured, whether now existing or hereafter created, and whether or
not specifically assigned to the Bank under the Security Agreement, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights and remedies of an unpaid vendor, lienor or secured party.
"Borrowing Base" means the Net Value of Eligible Accounts.
"Borrowing Base Certificate" means a certificate, in the form
required by the Bank, signed by a duly authorized officer of the Borrower, that
computes the Borrowing Base, together with any memo of returns and credits,
remittance report, schedule of Accounts and such other supporting documents and
materials which the Bank, in its sole discretion, may require to be delivered
with such certificate.
"Customer" means any Person who is obligated as an Account
debtor or other obligor on, under, or in connection with any Account.
"Defaulted Account" means an Account that a Customer has not
satisfied in full on or before the 91st day after the date an invoice is issued.
"Eligible Account" means each Account of the Borrower which,
at the time of determination, meets all the following qualifications: (a) the
Borrower has lawful and absolute title to such Account, subject only to the Lien
of the Bank given by the Security Agreement; such Lien constitutes a perfected
Lien in the Account prior to the rights of any other Person and such Account is
not subject to any other Lien whatsoever; (b) the Borrower has the full
unqualified right to grant a Lien in such Account to the Bank as security and
collateral for the Obligations; (c) the Account is evidenced by an invoice
issued to the proper Customer and is not evidenced by any instrument or chattel
paper; (d) the Account arose from the sale of goods or services by the Borrower
in the ordinary course of business, which goods or services have been shipped or
delivered to the Customer under such Account; and such sale was an absolute sale
and not on consignment, approval or a sale-and-return basis; (e) no notice of
the bankruptcy, receivership, reorganization or insolvency of the Customer has
been received by the Borrower; (f) the Account is a valid, legally enforceable
obligation of the Customer, and is not subject to any dispute, offset,
counterclaim, or other defense on the part of such Customer; (g) it is not a
Defaulted Account; (h) the terms of the Account require payment no more than 90
days from the date an invoice is issued; (i) the Customer on the Account is not
(1) the United States of America or any foreign
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government, or any department, agency or instrumentality thereof (unless the
Borrower and the Bank shall have fully complied with the Assignment of Claims
Act of 1940, as amended, or any other applicable law governing government
Accounts, with respect to such Account), (2) the Borrower, or any affiliate of
the Borrower, (3) located outside the United States or Canada, unless the sale
is secured by a letter of credit on which the Bank is the sole beneficiary and
the form, substance and issuer of which are acceptable to the Bank, or (4)
indebted to the Borrower in an amount, which when added to all other amounts
then owed to the Borrower by any affiliate of such Customer, exceeds 50% of the
amount of all then outstanding Eligible Accounts (other than EES); (j) the
Borrower is not indebted to the Customer on the Account (or any affiliate of
such Customer) for any goods provided or services rendered to the Borrower; (k)
the Account is not owing by any Customer with 50% or more of the value of its
outstanding Accounts not qualifying as Eligible Accounts; (l) the Account is an
Account representing all or part of the sales price of merchandise, insurance
and service within the meaning of Section 3(c)(5) of the Investment Company Act
of 1940, as amended; (m) a purchase of the Account would constitute a "current
transaction" within the meaning of Section 3(a)(3) of the Securities Act of
1933, as amended; (n) the Account is denominated and payable only in United
States dollars in the United States; and (o) the Bank, acting in its sole
discretion, has not notified the Borrower the Account may not be considered as
an Eligible Account.
"Lien" means any mortgage, deed of trust, lien, charge,
security interest (including, without limitation, a purchase money security
interest as such term is defined in Section 9-107 of the UCC) or encumbrance of
any kind upon, or pledge of, any property or asset, whether now owned or
hereafter acquired, and includes the acquisition of, or agreement to acquire,
any property or asset subject to any conditional sale agreement or other title
retention agreement, including a lease on terms tantamount thereto or on terms
otherwise substantially equivalent to a purchase.
"Net Value of Eligible Accounts" means 70% of the lower of the
book value or collectible value of Eligible Accounts as reflected in the
Borrower's books in accordance with GAAP, net of all credits, discounts and
allowances (including all unissued credits in the form of a competitive
allowance or otherwise).
"Obligations" means (a) the obligations of the Borrower to the
Bank under the Security Agreement and this Note, (b) all costs and expenses
incurred by the Bank in the collection or the enforcement of any such
obligations of the Borrower, or realization upon the Collateral, including,
without limitation, reasonable attorneys' fees and legal expenses, (c) all
future advances made by the Bank for the maintenance, protection or preservation
of the Collateral or any portion thereof, including, without limitation,
advances for storage, insurance premiums, transportation charges, and the like
and (d) all other obligations of the Borrower to the Bank, howsoever created,
arising, or evidenced, whether direct or indirect, absolute or contingent, or
now or hereafter existing or due or to become due.
"Person" means any individual, sole proprietorship,
partnership, joint venture, corporation, trust, unincorporated organization,
government (or any department, agency, instrumentality or political division
thereof) or any other entity.
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This Note was executed in Columbus, Ohio as of the date first written
above.
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WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
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NEOPROBE CORPORATION
By: /s/ David C. Bupp
------------------
Name: David C. Bupp
Its: President and Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.4.35
TENNESSEE REVOLVING CREDIT NOTE
================================================================================
COLUMBUS, OHIO
$100,000 AUGUST 31, 1999
================================================================================
FOR VALUE RECEIVED, the undersigned, NEOPROBE CORPORATION, a Delaware
corporation, whose address is 425 Metro Place North, Suite 400, Dublin, Ohio
43017 (the "Borrower"), hereby promises to pay to the order of THE PROVIDENT
BANK, an Ohio banking corporation (the "Bank"), on or before December 31, 1999
(the "Maturity Date"), the principal sum of One Hundred Thousand Dollars
($100,000) or, if such principal is less, the aggregate unpaid principal amount
of all loans made by the Bank to the Borrower pursuant to this Revolving Credit
Note, together with interest, all as provided in Section 1 of this Note.
SECTION 1. THE DEBT. Subject to and on the terms and conditions set
forth in this Note, the Bank shall provide loans and the Borrower shall repay
the indebtedness incurred hereunder as follows:
1.1. REVOLVING CREDIT LOANS. During the period from and
including the date hereof to but excluding the Maturity Date, the Bank agrees,
on the terms and conditions set forth in this Agreement, to make one or more
loans ("Revolving Credit Loans") to the Borrower in an aggregate principal
amount at any one time outstanding up to but not exceeding the greater of (a)
the Revolving Credit Commitment or (b) the Borrowing Base (as such terms are
defined in Section 7.15 hereof). Subject to the terms of this Note, during such
period, the Borrower may borrow, repay and reborrow the amount of the Revolving
Credit Commitment by means of Revolving Credit Loans. The date, amount, and
interest rate of each Revolving Credit Loan made by the Bank to the Borrower,
and each payment made on account of the principal thereof, shall be recorded by
the Bank on its books and records, such recordation to constitute conclusive
evidence in the absence of manifest error of the amount of such Loans and
payments.
1.2. BORROWING PROCEDURE. The Borrower shall give the Bank
notice not later than 10:00 a.m on the date of each Revolving Loan, specifying:
1.2.1. The date of such Loan, which shall be a
Banking Day; and
1.2.2. The aggregate amount of the Revolving Credit
Loan.
The proceeds of the initial Revolving Credit Loan (in the amount of $353,000)
shall be distributed to the Borrower to finance payments made by the Borrower to
vendors involved in the development of products described in Section 1.6 below.
The Borrower shall forward to the Bank proof of payment to such vendors pursuant
to Section 1.7 below. The proceeds of each subsequent Revolving Credit Loan
shall be forwarded by the Bank directly to specific vendors to pay amounts the
Borrower currently owes to such vendors. The vendors who receive proceeds of
<PAGE> 2
such Revolving Credit Loans shall be those vendors who are necessary to support
the development of products described in Section 1.6 below.
1.3. PRINCIPAL. The Borrower shall pay the principal balance
of this Note to the Bank on or before the Maturity Date.
1.4. INTEREST.
1.4.1. The Debt shall bear interest on the
outstanding principal amount, for each day at a per annum rate equal to the rate
of interest for such day publicly announced by the Bank as its prime rate (the
"Prime Rate") plus one hundred (100) basis points. The Prime Rate is not
intended to be the lowest rate of interest charged by the Bank in connection
with extensions of credit for borrowers. Interest on the Debt shall be paid by
the Borrower (a) on the last day of each calendar month, commencing September
30, 1999, (b) on the Maturity Date and (c) thereafter on demand.
1.4.2. All interest under this Note shall be
computed on the basis of the actual days elapsed in a year of 360 days.
1.5. PREPAYMENTS; PAYMENTS.
1.5.1. The Borrower shall have the right to make
prepayments at any time of the principal amount of the Debt, in whole or in
part, without notice. Each prepayment shall be without premium or penalty.
Subject to the terms and provisions of this Note, the Bank will reloan to the
Borrower such amounts as have been paid and applied on the principal balance of
a Revolving Credit Loan prepaid pursuant to this Section.
1.5.2. The Borrower shall make all payments of
principal and interest under this Note to the Bank at its main office (or such
other location as the Bank may direct) in immediately available funds. If any
payment of principal or interest on this Note shall become due on a day other
than a Banking Day, such payment shall be due and payable upon the next
succeeding Banking Day and such extension of time shall in such case be included
in computing interest in connection with such payment. A "Banking Day" is any
day on which the main office of the Bank is open for business.
1.6. PURPOSE. The purpose of the Revolving Credit Loans
represented by this Note is to support the development between the Borrower and
Ethicon Endo Surgery, Inc. ("EES") by providing working capital for the
manufacture of units outlined in an EES purchase order for $1,868,000.
1.7. CONDITION PRECEDENT. As a condition precedent to making
the first Revolving Credit Loan hereunder, the Borrower must:
1.7.1. deliver to the Bank the EES purchase order;
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<PAGE> 3
1.7.2. set up its operating bank accounts with the
Bank within 60 days after EES issues the purchase order;
1.7.3. proof of payment to vendors of $353,000;
1.7.4. open a lockbox with the Bank within 60 days
after EES issues the purchase order for the receipt of all payments received
from EES, and direct EES to make all payments to such lockbox;
1.7.5. have all liens on the personal property of
the Borrower subject to the Security Agreement described in Section 4 below
either released or subordinated to the satisfaction of the Bank; and
1.7.6. execute and deliver the Revolving Credit
Note dated as of the date hereof and issued to the Bank in the original
principal amount of $400,000 (the "Ohio Note" and, collectively with this Note,
the "Notes").
SECTION 2. REPRESENTATIONS AND WARRANTIES. The execution of this Note
by the Borrower shall be deemed to constitute the Borrower's representation and
warranty to the Bank that, at the time of execution and at the time of
disbursement of each Revolving Credit Loan hereunder: (a) the Notes and the
Security Agreement (as defined in Section 4 hereof) are the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their terms; (b) the Security Agreement creates a valid lien of
the Bank in the collateral thereof, prior to the claims of any other person or
entity; (c) the execution and delivery of the Notes and the Security Agreement
by the Borrower do not and will not conflict with, violate or constitute a
default under or breach of any court or administrative order, decree or ruling,
or any law, statute, ordinance or regulation, or any agreement, indenture,
mortgage, deed of trust, guaranty, lease, note or other obligation or instrument
binding upon the Borrower or any of its respective properties or assets; and (d)
neither this Note nor any other statement, assignment, agreement, instrument or
certificate of the Borrower made or delivered pursuant to or in connection with
this Note contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein, in light of the circumstances under
which they were made, or necessary to make the statements therein not
misleading.
SECTION 3. COVENANTS.
3.1. COMPLIANCE WITH LAWS. On and after the date hereof and
until the Debt shall have been repaid and discharged in full or otherwise
satisfied, the Borrower shall comply with all applicable laws.
3.2. FURNISHING OF FINANCIAL STATEMENTS AND OTHER
INFORMATION.
3.2.1. The Borrower shall furnish to the Bank as
soon as practicable after the end of each of the month in each fiscal year of
the Borrower, and in any event within 30 days thereafter, complete internally
prepared financial statements (the "Financial Statements") of the Borrower,
including without limitation (a) a balance sheet of the Borrower as at the end
of such
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<PAGE> 4
month, (b) a statement of operations of the Borrower for such month and (c) a
statement of cash flows of the Borrower for such month. All such Financial
Statements shall be in reasonable detail and certified by the Treasurer or
Controller of the Borrower as having been prepared in accordance with GAAP
(except as to footnotes and subject to year-end adjustments), as being true,
accurate, complete and correct in all material respects, and as presenting
fairly the financial position of the Borrower as at the respective date of such
balance sheet and the results of operations of the Borrower for the respective
period covered.
3.2.2. The Borrower shall furnish to the Bank as
soon as practicable after the end of each fiscal year of the Borrower, and in
any event within 90 days thereafter, complete audited Financial Statements of
the Borrower including without limitation (a) a balance sheet of each as at the
end of such fiscal year, (b) a statement of operations of each for such fiscal
year, (c) a statement of shareholders' equity of each for such fiscal year, and
(d) a statement of cash flows of each for such fiscal year, together with
comparative figures for the previous fiscal year, all in reasonable detail. The
balance sheets and statements shall be audited in form and substance
satisfactory to the Bank by independent certified public accountants of
recognized standing acceptable to the Bank.
5.2.3. The Borrower will furnish to the Bank as
soon as practicable after the end of each calendar month, and in any event
within 15 days thereafter, an Accounts aging report in a format acceptable to
the Bank and a Borrowing Base Certificate for such month. During the occurrence
of an Event of Default, the Borrower shall be required to deliver aging
schedules, trial balances, test verifications of Accounts and other reports
reasonably requested by the Bank.
SECTION 4. SECURITY FOR DEBT. This Note is secured by and entitled to
(a) a Security Agreement dated as of the date hereof, made by the Borrower for
the benefit of the Bank (the "Security Agreement") and (b) UCC-1 financing
statements filed with the Ohio Secretary of State and the Franklin county
Recorder, each dated as of the date hereof, as any of the above may be further
amended or modified from time to time. Nothing contained in this Note, the
Security Agreement, or in any other document or instrument made in connection
herewith, shall be deemed or construed to create a partnership,
tenancy-in-common, joint tenancy, joint venture or co-ownership by or between
the Bank and the Borrower. The Bank shall not be in any way responsible for the
debts, losses, obligations or duties of the Borrower.
SECTION 5. EVENTS OF DEFAULT. The following are Events of Default:
5.1. The Borrower fails to make a payment of interest on this
Note when and as due.
5.2. The Borrower fails to pay the principal of this Note when
and as due.
5.3. The Borrower fails to make a payment of any fee, expense
or other amount of money (not including the principal of or interest on this
Note) owing to the Bank under this Note when and as due and such failure is not
remedied within 10 Banking Days after the due date.
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<PAGE> 5
5.4. Any representation or warranty made by the Borrower in
this Note or any information contained in the Security Agreement, any
certificate, report, financial statement or other document delivered to the Bank
by the Borrower contains any untrue statement of a material fact or omits to
state a material fact required by this Note or law to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.5. The Borrower fails to perform any of its obligations
under or fails to comply with any covenant contained in this Note and such
failure continues unremedied for a period of ten Banking Days.
5.6. Any governmental body or officer or creditor of the
Borrower seizes, takes possession of or collects (whether or not the Borrower
resists or acquiesces in such seizure, taking or collection) any property of the
Borrower by any means, including, without limitation, execution, levy,
sequestration, attachment, garnishment, replevin or self-help, unless such
seizure, taking or collection is vacated or the property is discharged within 30
days after the occurrence thereof.
5.7. One or more final judgments are entered against the
Borrower for the payment of money aggregating in excess of $50,000 and any one
of such judgments has been outstanding for more than 30 days from the date of
its entry and has not been discharged in full or stayed pending appeal.
5.8. The Borrower:
5.8.1. makes an assignment for the benefit of
creditors;
5.8.2. enters into any composition, compromise or
arrangement with its creditors;
5.8.3. generally does not pay its debts as such
debts become due; or
5.8.4. conceals, removes, or permits to be concealed
or removed, any part of its or his property, with intent to hinder, delay or
defraud its or his creditors or any of them, or makes or suffers a transfer of
any of its property, fraudulent under the provisions of any bankruptcy,
fraudulent conveyance or similar law, or makes or suffers a transfer of its
property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid.
5.9. If:
5.9.1. a trustee, receiver, agent or custodian is
appointed or authorized to take charge of any property of the Borrower for the
purpose of enforcing a lien against such property or for the purpose of
administering such property for the benefit of the Borrower's creditors; or
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<PAGE> 6
5.9.2. an order (a) for relief against the Borrower
is granted under Title 11 of the United States Code or any similar law, (b)
appointing a receiver, trustee, agent or custodian of the Borrower or any
property of the Borrower or (c) providing for a composition, compromise or
arrangement with the creditors of the Borrower is entered by any court or
governmental body or officer; or
5.9.3. the Borrower files any pleading seeking
(whether by formal action or by the admission of the material allegations of a
pleading or otherwise) any such appointment or order; or
5.9.4. (a) any action or proceeding seeking any such
appointment or order is commenced without the authority or consent of the
Borrower and (b)(i) such action or proceeding is not dismissed within 90 days
after its commencement or (ii) the Borrower does not diligently contest such
action or proceeding.
5.10. An Event of Default occurs under the Security Agreement
or the Ohio Note.
5.11. Except for the events that exist on the date this Note
is executed as disclosed on Schedule 5.11 hereto, the Borrower fails to pay when
and as due the principal of or any interest on any Indebtedness (as defined
below), other than as evidenced by this Note or the Security Documents (assuming
that all required notices have been properly given and all corresponding grace
periods, if any, have elapsed without cure by the Borrower) or any other event
exists which, under the terms of any agreement or instrument other than the Note
or the Security Documents, relates to any Indebtedness becoming, or becoming
capable at such time of being declared, due and payable before it would
otherwise have been due and payable. "Indebtedness" means, for the Borrower (a)
all indebtedness or other obligations of the Borrower for borrowed money or for
the deferred purchase price of property or services (except for unsecured trade
payables incurred in the ordinary course of business on normal and reasonable
terms), (b) all indebtedness or other obligations of any other person for
borrowed money or for the deferred purchase price of property or services, the
payment or collection of which the Borrower has guaranteed (except by reason of
endorsement for deposit or collection in the ordinary course of business) or in
respect of which the Borrower is liable, contingently or otherwise, including,
without limitation, liable by way of agreement to purchase, to provide funds for
payment, to supply funds to or otherwise to invest in such other person, or
otherwise to assure a creditor against loss, (c) all indebtedness or other
obligations of any other person for borrowed money or for the deferred purchase
price of property or services secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien upon or in property (including, without limitation, accounts and
contract rights) owned by the Borrower whether or not the Borrower has assumed
or become liable for the payment of such indebtedness or other obligations, (d)
all direct or contingent obligations of the Borrower in respect of letters of
credit and (e) all lease obligations which have been or should be, in accordance
with generally accepted accounting principles, capitalized on the books of the
Borrower as lessee.
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<PAGE> 7
SECTION 6. DEFAULT REMEDIES.
6.1. ACCELERATION. If an Event of Default exists, the
outstanding unpaid principal balance of this Note, together with all interest
accrued hereon is immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby waived.
6.2. SET-OFF. Any and all moneys now or at any time hereafter
owing to the Borrower from the Bank, and all other funds on deposit in one or
more checking accounts with the Bank for the benefit of the Borrower, are hereby
pledged for the security of this and all other indebtedness from the Borrower to
the Bank or any legal holder hereof, and may, upon any demand for payment, be
paid and applied thereon whether such indebtedness be then due or to become due,
all without notice to or demand on the Borrower or any other person, all such
notices and demands being hereby expressly waived. If an Event of Default
exists, the Bank shall have the right, in addition to all other rights and
remedies available to it, to set-off against the principal of and interest on
this Note and any fees, expenses or other amounts owed to the Bank under this
Note (a) all amounts owing to the Borrower by the Bank, whether or not then due
and payable, and (b) all other funds or property of the Borrower (i) in a
deposit account (general or special) maintained with the Bank, or (ii) on
deposit with or otherwise held by or in the custody of the Bank for the
beneficial account of the Borrower, whether solely in the name of or for the
benefit of the Borrower or jointly in the name of or for the benefit of the
Borrower and any other person, all without notice to or demand on the Borrower
or any other person, all such notices and demands being hereby expressly waived.
The Bank will notify the Borrower of any such set-off promptly after its
occurrence, but the failure to give such notice shall not affect the validity of
the set-off. The Borrower hereby confirms the Bank's right of banker's set-off
(also known as banker's lien) as it applies to the Borrower as set forth above,
and nothing in this Note shall be deemed a waiver or prohibition of such right
of banker's set-off.
6.3. REMEDIES CUMULATIVE. The Bank may exercise the remedies
provided in the Pledge Agreement upon the occurrence of an Event of Default. No
right or remedy conferred upon the Bank by this Note or legally available to the
Bank if an Event of Default exists is intended to be exclusive of any other
right or remedy, and each such right or remedy is cumulative and in addition to
every other such right or remedy.
6.4. FORCE MAJEURE. The existence of an Event of Default is
not affected by the reason for its occurrence, even if the Event of Default was
not caused by a voluntary act of the Borrower or was caused by a natural
disaster or force majeure.
SECTION 7. MISCELLANEOUS.
7.1. MODIFICATIONS AND WAIVERS. No modification or waiver of
any term or provision contained in this Note and no consent to any departure by
the Borrower therefrom shall in any event be effective unless the same is in
writing and signed by the waiving party. Such waiver or consent shall be
effective only in the specific instance and for the purpose for which it is
given.
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<PAGE> 8
7.2. NOTICES. Except where specific provisions of this Note
provide for some other form of notice or require receipt as a condition of
notice, any consent, waiver, notice, demand or other instrument required or
permitted to be given under this Note shall be deemed to have been properly
received when in writing and delivered in person or sent by certified or
registered United States mail, return receipt requested, postage prepaid,
addressed, if to the Borrower: 425 Metro Place North, Suite 300, Dublin, Ohio
43017, Attention: Brent Larson; and if to the Bank: 10 West Broad Street,
Mezzanine Level, Columbus, Ohio 43287, Attention: Michael D. Davis. Either party
may change its address for notices by notice in the manner set forth above.
7.3. PARTIAL INVALIDITY. If any term or provision of this Note
or the application thereof to any person, firm or corporation or any
circumstance, shall be invalid or unenforceable, the remainder of this Note, or
the application of such term or provision to any person, firm or corporation or
any circumstances, other than those as to which it is held invalid, shall both
be unaffected thereby and each term or provision of this Note shall be valid and
be enforced to the fullest extent permitted by law.
7.4. NO IMPLIED RIGHTS OR WAIVERS. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in the same, similar or other circumstances. Neither any
failure nor any delay on the part of the Bank in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of the same or
the exercise of any other right, power or privilege. The Borrower hereby waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note.
7.5. SUCCESSORS AND ASSIGNS. This Note shall be binding upon
and inure to the benefit of the respective heirs, successors and assigns of the
Bank and the Borrower; provided that the Borrower shall have no right to assign
or transfer its rights under this Note voluntarily or by operation of law
without first obtaining the written consent of the Bank, and any attempted
assignment or transfer in the absence of such consent shall be void and of no
effect.
7.6. EXPENSES. All fees, costs and expenses, including
reasonable fees and expenses of outside legal counsel, incurred by the Bank in
connection with the preparation and enforcement of this Note or any other
instruments, documents, or agreements to be delivered pursuant hereto or in
connection herewith, shall be paid by the Borrower to the Bank on demand.
7.7. SURVIVAL OF PROVISIONS. All covenants, agreements,
representations, warranties and statements made in this Note or in any
certificate, statement, or other instrument given pursuant to this Note shall
survive the execution and delivery to the Bank of this Note and the making of
the Debt and shall continue in full force and effect so long as any obligation
of the Borrower under this Note is outstanding and unpaid.
7.8. CAPTIONS. The captions and section numbers appearing in
this Note are inserted only as a matter of convenience; they do not define,
limit, construe or describe the scope or intent of the provisions of this Note.
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<PAGE> 9
7.9. GOVERNING LAW. This Note shall be governed and construed
by the provisions hereof and in accordance with the laws of the State of Ohio
applicable to instruments to be performed in the State of Ohio.
7.10. CONSENT. The Borrower hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Ohio and of the United States of America located in the City of
Columbus, Ohio for any actions, suits or proceedings arising out of or relating
to this Note and the transactions contemplated hereby (and the Borrower agrees
not to commence any action, suit or proceeding relating thereto except in such
courts), and further agrees that service of any process, summons, notice or
document by U.S. certified or registered mail, return receipt requested, to the
address set forth in Section 7.2 shall be effective service of process for any
action, suit or proceeding brought against the Borrower in any such court. The
Borrower hereby irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Note, or
the transactions contemplated hereby, in the courts of the State of Ohio or the
United States of America located in the City of Columbus, Ohio, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
7.11. JOINT PREPARATION. This Note is to be deemed to have
been prepared jointly by the Borrower and the Bank, and any uncertainty or
ambiguity existing herein shall not be interpreted against either party, but
shall be interpreted according to the rules for the interpretation of arm's
length agreements.
7.12. THIRD PARTIES. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person other than the
parties hereto and their successors or assigns, any rights or remedies under or
by reason of this Note.
7.13. CONFESSION OF JUDGMENT. The Borrower hereby authorizes
any attorney at law to appear for the Borrower, in an action on this Note, at
any time after the same become due, as herein provided, in any court of record
in or of the State of Ohio, or elsewhere, to waive the issuing and service of
process against the Borrower and to confess judgment in favor of the holder of
the this Note or the party entitled to the benefits hereof against the Borrower
for the amount that may be due, with interest at the rate herein mentioned and
costs of suit, and to waive and release all errors in said proceedings and
judgment, and all petitions in error, and right of appeal from the judgment
rendered.
7.14. WAIVER OF JURY TRIAL. THE BANK AND THE BORROWER HEREBY
VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN THE BANK AND THE BORROWER ARISING OUT OF, IN CONNECTION WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE BORROWER
AND THE BANK IN CONNECTION WITH THIS NOTE, THE SECURITY DOCUMENTS, OR ANY OTHER
AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION
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<PAGE> 10
HEREWITH OR THEREWITH OR THE TRANSACTIONS RELATED HERETO OR THERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO ENTER INTO THE FINANCING
TRANSACTIONS WITH THE BORROWER. IT SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT,
AMEND OR MODIFY THE BANK'S ABILITY TO PURSUE ITS REMEDIES INCLUDING, BUT NOT
LIMITED TO, ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN THIS
NOTE, THE SECURITY DOCUMENTS OR ANY OTHER DOCUMENT RELATED HERETO OR THERETO.
7.15. DEFINITIONS. As used in this Note, the following terms
shall have the meanings set forth below. Additional defined terms appear
elsewhere in this Note:
"Account" means and includes all accounts (whether or not
earned by performance), contract rights, chattel paper, instruments, documents,
general intangibles (including, without limitation, tax refunds and tax refund
claims) and all other forms of obligations owing to the Borrower, whether
secured or unsecured, whether now existing or hereafter created, and whether or
not specifically assigned to the Bank under the Security Agreement, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights and remedies of an unpaid vendor, lienor or secured party.
"Borrowing Base" means the Net Value of Eligible Accounts.
"Borrowing Base Certificate" means a certificate, in the form
required by the Bank, signed by a duly authorized officer of the Borrower, that
computes the Borrowing Base, together with any memo of returns and credits,
remittance report, schedule of Accounts and such other supporting documents and
materials which the Bank, in its sole discretion, may require to be delivered
with such certificate.
"Customer" means any Person who is obligated as an Account
debtor or other obligor on, under, or in connection with any Account.
"Defaulted Account" means an Account that a Customer has not
satisfied in full on or before the 91st day after the date an invoice is issued.
"Eligible Account" means each Account of the Borrower which,
at the time of determination, meets all the following qualifications: (a) the
Borrower has lawful and absolute title to such Account, subject only to the Lien
of the Bank given by the Security Agreement; such Lien constitutes a perfected
Lien in the Account prior to the rights of any other Person and such Account is
not subject to any other Lien whatsoever; (b) the Borrower has the full
unqualified right to grant a Lien in such Account to the Bank as security and
collateral for the Obligations; (c) the Account is evidenced by an invoice
issued to the proper Customer and is not evidenced by any instrument or chattel
paper; (d) the Account arose from the sale of goods or services by the Borrower
in the ordinary course of business, which goods or services have been shipped or
delivered to the Customer under such Account; and such sale was an absolute sale
and not on consignment, approval or a sale-and-return basis; (e) no notice of
the bankruptcy, receivership,
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<PAGE> 11
reorganization or insolvency of the Customer has been received by the Borrower;
(f) the Account is a valid, legally enforceable obligation of the Customer, and
is not subject to any dispute, offset, counterclaim, or other defense on the
part of such Customer; (g) it is not a Defaulted Account; (h) the terms of the
Account require payment no more than 90 days from the date an invoice is issued;
(i) the Customer on the Account is not (1) the United States of America or any
foreign government, or any department, agency or instrumentality thereof (unless
the Borrower and the Bank shall have fully complied with the Assignment of
Claims Act of 1940, as amended, or any other applicable law governing government
Accounts, with respect to such Account), (2) the Borrower, or any affiliate of
the Borrower, (3) located outside the United States or Canada, unless the sale
is secured by a letter of credit on which the Bank is the sole beneficiary and
the form, substance and issuer of which are acceptable to the Bank, or (4)
indebted to the Borrower in an amount, which when added to all other amounts
then owed to the Borrower by any affiliate of such Customer, exceeds 50% of the
amount of all then outstanding Eligible Accounts (other than EES); (j) the
Borrower is not indebted to the Customer on the Account (or any affiliate of
such Customer) for any goods provided or services rendered to the Borrower; (k)
the Account is not owing by any Customer with 50% or more of the value of its
outstanding Accounts not qualifying as Eligible Accounts; (l) the Account is an
Account representing all or part of the sales price of merchandise, insurance
and service within the meaning of Section 3(c)(5) of the Investment Company Act
of 1940, as amended; (m) a purchase of the Account would constitute a "current
transaction" within the meaning of Section 3(a)(3) of the Securities Act of
1933, as amended; (n) the Account is denominated and payable only in United
States dollars in the United States; and (o) the Bank, acting in its sole
discretion, has not notified the Borrower the Account may not be considered as
an Eligible Account.
"Lien" means any mortgage, deed of trust, lien, charge,
security interest (including, without limitation, a purchase money security
interest as such term is defined in Section 9-107 of the UCC) or encumbrance of
any kind upon, or pledge of, any property or asset, whether now owned or
hereafter acquired, and includes the acquisition of, or agreement to acquire,
any property or asset subject to any conditional sale agreement or other title
retention agreement, including a lease on terms tantamount thereto or on terms
otherwise substantially equivalent to a purchase.
"Net Value of Eligible Accounts" means 70% of the lower of the
book value or collectible value of Eligible Accounts as reflected in the
Borrower's books in accordance with GAAP, net of all credits, discounts and
allowances (including all unissued credits in the form of a competitive
allowance or otherwise).
"Obligations" means (a) the obligations of the Borrower to the
Bank under the Security Agreement and this Note, (b) all costs and expenses
incurred by the Bank in the collection or the enforcement of any such
obligations of the Borrower, or realization upon the Collateral, including,
without limitation, reasonable attorneys' fees and legal expenses, (c) all
future advances made by the Bank for the maintenance, protection or preservation
of the Collateral or any portion thereof, including, without limitation,
advances for storage, insurance premiums, transportation charges, and the like
and (d) all other obligations of the Borrower to the Bank, howsoever created,
arising, or evidenced, whether direct or indirect, absolute or contingent, or
now or hereafter existing or due or to become due.
11
<PAGE> 12
"Person" means any individual, sole proprietorship,
partnership, joint venture, corporation, trust, unincorporated organization,
government (or any department, agency, instrumentality or political division
thereof) or any other entity.
"Revolving Credit Commitment" means the obligation of the Bank
to make Revolving Credit Loans to the Borrower hereunder and under the Ohio Note
up to an aggregate principal amount of $500,000. The principal amount
outstanding under the Ohio Note shall decrease the aggregate principal amount
available for the Revolving Credit Loans hereunder by a corresponding amount.
This Note was executed in Columbus, Ohio as of the date first written
above.
================================================================================
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
================================================================================
NEOPROBE CORPORATION
By: David C. Bupp
---------------------------------------
Name: David C. Bupp
Its: President and Chief Executive Officer
12
<PAGE> 1
EXHIBIT 10.4.36
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), is made on August 31, 1999,
by and between NEOPROBE CORPORATION, a Delaware corporation ("Debtor"), and THE
PROVIDENT BANK, an Ohio banking corporation ("Secured Party").
RECITALS:
WHEREAS, Secured Party has made, and intends to make in the future,
loans to the Debtor from time to time (collectively, the "Revolving Credit
Loans") pursuant to a $400,000 Revolving Credit Note and a $100,000 Tennessee
Revolving Credit Note, each dated as of the date hereof (the "Revolving Credit
Notes"); and
WHEREAS, Debtor will use the proceeds of the Revolving Credit Loans to
the manufacture of specific units pursuant to a purchase order received from
Ethicon Endo Surgery, Inc.; and
WHEREAS, Secured Party agreed to make the Revolving Credit Loans on the
condition that Debtor would provide security for the Revolving Credit Loans; and
WHEREAS, Debtor agrees to grant to and create in favor of Secured
Party, in the manner set forth in this Agreement, security interests in certain
property of Debtor as security for the performance and payment of the Secured
Obligations (as defined in Section 1 hereof).
NOW THEREFORE, for and in consideration of the Revolving Credit Loans
to Debtor and the benefits Debtor receives from them, the representations,
warranties, and mutual covenants set forth in this Agreement, the parties
hereto, intending to be legally bound, hereby agree as follows:
Section 1. DEFINED TERMS.
1.1. DEFINITIONS. Certain capitalized words and terms as used
in this Agreement shall have the meanings given to them in the Uniform
Commercial Code unless otherwise indicated herein or the context or use
indicates another or different meaning or intent. All defined terms shall be
equally applicable to both the singular and plural forms of any of the words and
terms herein defined. In addition, the following capitalized words shall have
the following meanings when used herein:
"Accounts" has the meaning assigned to that term in the Uniform
Commercial Code.
"Chattel Paper" has the meaning assigned to that term in the Uniform
Commercial Code.
"Event of Default" shall mean the failure of the Debtor to comply with
any of the terms of this Agreement or to repay the Revolving Credit Loans at the
times required by the Revolving Credit Notes.
<PAGE> 2
"GAAP" means generally accepted accounting principles, as from time to
time in effect, applied throughout any applicable period on a basis consistent
with the accounting principles reflected in Guarantor's financial statements.
"General Intangibles" has the meaning assigned to that term in the
Uniform Commercial Code excluding all rights of Debtor in intellectual property,
goodwill, trademarks, trade names, service marks, copyrights, patents, and
licenses and in applications therefor.
"Instruments" has the meaning assigned to that term in the Uniform
Commercial Code.
"Inventory" has the meaning assigned to that term in the Uniform
Commercial Code.
"Lease" means any lease or other agreement (however denominated)
providing for the use by one person of real or personal property owned by
another person (or the entering into such a lease or agreement).
"Loan Documents" means this Agreement, the Revolving Credit Notes and
all other instruments or agreements required or contemplated hereby or thereby
or evidencing the Revolving Credit Loans.
"Permitted Liens" are those liens set forth in Section 13 hereof.
"Premises" has the meaning assigned that term in Section 2.3.1 hereof.
"Rentals" means with respect to any Lease, for any period, the
aggregate of all amounts required to be paid by the lessee thereunder for such
period, whether or not designated in such Lease as rentals or otherwise.
"Revolving Credit Loans" has the meaning assigned that term in the
first Recital hereof.
"Revolving Credit Notes" has the meaning assigned that term in the
first Recital hereof.
"Secured Obligations" means (a) all principal and interest due and
payable for the Revolving Credit Loans made under the Revolving Credit Notes and
(b) all costs and expenses incurred by Secured Party in the realization upon the
Collateral, including without limitation reasonable attorneys' fees and legal
expenses.
"Uniform Commercial Code" means Chapters 1301 through 1309 of the Ohio
Revised Code as the same may be from time to time supplemented or amended
hereafter.
Section 2. CREATION OF SECURITY INTERESTS. As security for the full and
timely discharge of the Secured Obligations in accordance with their respective
terms, Debtor agrees that Secured Party will have, and there is hereby granted
to and created in favor of Secured Party, a security
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<PAGE> 3
interest under the Uniform Commercial Code, and otherwise in accordance with
applicable law, in and to the following (hereinafter collectively referred to as
the "Collateral"):
2.1. All Accounts and General Intangibles now or
hereafter owned by Debtor, including, without limitation, (i) all moneys due and
to become due under any contractual obligation, (ii) any damages arising out of
or for breach or default in respect of any Account and (iii) all other amounts
from time to time paid or payable under or in connection with any such Account;
but specifically excluding all rights of Debtor in intellectual property,
goodwill, trademarks, trade names, service marks, copyrights, patents, and
licenses and in applications therefor.
2.2. All Goods and Inventory now or hereafter owned
by Debtor.
2.3. All Instruments and Chattel Paper now or
hereafter owned by Debtor.
2.4. To the extent not otherwise included, all other
personal property, tangible or intangible, of Debtor other than tools and dies
used in the production of Inventory.
2.5. To the extent not otherwise included, all books
and records pertaining to the foregoing, and all Proceeds or products of any or
all of the foregoing.
Section 3. RIGHTS AND REMEDIES OF A SECURED PARTY. In addition to all
of the rights and remedies given to Secured Party by this Agreement, Secured
Party shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code.
Section 4. PROVISIONS APPLICABLE TO THE COLLATERAL. The parties agree
that the following provisions shall be applicable to the Collateral and Debtor
agrees that during the term of this Agreement:
4.1. BOOKS AND RECORDS; CHIEF EXECUTIVE OFFICES.
4.1.1. Debtor shall keep accurate and complete books
and records concerning the Collateral in accordance with GAAP. For the purpose
of establishing the location and value of the Collateral, Debtor shall furnish
to Secured Party, at such times and in such form and substance as may be
requested by Secured Party, information adequate to identify the Collateral,
including, without limitation, the location, cost and fair market value of the
Collateral.
4.1.2. (a) Debtor represents and warrants that its
chief executive office is located at the address set forth below:
Neoprobe Corporation
425 Metro Place North, Suite 300
Dublin, Ohio 43017
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<PAGE> 4
(b) Debtor shall not move its chief
executive office except to such new location as it may establish in accordance
with Section 4.1.5 below.
4.1.3. (a) The only original books of account and
records of Debtor relating to the Collateral are, and will continue to be, kept
at the offices of Debtor set forth in Section 4.1.2 above.
(b) The location where such books of account
and records are kept shall not be changed by Debtor except in accordance with
Section 4.1.5 below.
4.1.4. Debtor represents and warrants that the
location of all the Collateral is accurately and completely set forth in Exhibit
A hereto.
4.1.5. Debtor shall not establish any different
location for its chief executive office or for the place where the original
books of account and records of Debtor relating to the Collateral are kept until
(a) it shall have given to Secured Party written notice, 10 days before doing
so, of its intention to establish such new location, clearly describing each
such new location and providing any other information in connection therewith
that Secured Party may reasonably request, and (b) with respect to each such new
location, it shall have taken such action, satisfactory to Secured Party
(including without limitation all action required by Section 5 of this
Agreement), as may be necessary to maintain the security interest of Secured
Party in the Collateral at all times fully perfected and in full force and
effect.
4.1.6. Debtor shall not hold its right, title or
interest or maintain its records relating to any Collateral or invoice any
Account debtor with respect to any Collateral in any name other than its own
proper corporate name.
4.2. INSPECTION. Debtor shall permit any persons designated by
Secured Party, in order to permit Secured Party to assure itself of performance
by Debtor of the Secured Obligations or otherwise facilitate compliance with
this Agreement, to enter, examine, audit and inspect the Collateral and all
properties, corporate books and financial records pertaining to the Collateral
or to the operation, business, affairs and financial condition of Debtor, at any
reasonable time and from time to time, and shall permit such persons to copy (by
photocopy or otherwise) and make excerpts of such books and records.
4.3. NOTICE OF ADVERSE CHANGE. Debtor shall immediately notify
Secured Party of any adverse change of which Debtor has knowledge which
adversely affects or may adversely affect its right, title, or interest in, or
the value of, the Collateral.
4.4. SALE OF INVENTORY. Notwithstanding the security interest
in the Collateral granted hereunder, Debtor shall have the right to sell, lease
or otherwise dispose of its Inventory in the ordinary course of its business
free and clear of such security interest; but in such event, such security
interest shall continue in the proceeds of such sale, lease or other
disposition.
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<PAGE> 5
4.5. ACCOUNT VERIFICATION. Secured Party may at any time,
cause Debtor to verify with any Account debtor of Debtor as to the status of any
Accounts payable by such Account debtor. The Debtor shall direct the Account
debtor to furnish a written response to the request for verification to a post
office box at a post office located in Columbus, Ohio, which post office box
shall be controlled by Secured Party. Prior to the occurrence of an Event of
Default Secured Party shall make no request for verification directly with the
Account debtor. Debtor from time to time will execute and deliver such
instruments and take all such action as Secured Party may reasonably request in
order to effectuate the purposes of this Section 4.5.
4.6. THE DEBTOR'S RIGHTS TO COLLECT ACCOUNTS. Notwithstanding
any security interest in Accounts of Debtor granted hereunder, Debtor shall have
the right to and shall endeavor to collect such Accounts at its own cost and
expense, until such time as Secured Party shall have notified Debtor pursuant to
Section 4.7 below that Secured Party has revoked Debtor's right to collect such
Accounts.
4.7. COLLECTION OF ACCOUNTS BY THE SECURED PARTY. If an Event
of Default shall have occurred and be continuing, Secured Party shall have the
right at any time and without affecting the liability of Debtor to Secured Party
(a) to revoke any right of Debtor to collect its Accounts pursuant to Section
4.6 above by written notice to Debtor to such effect, (b) to take over and
direct collection of such Accounts of Debtor, (c) to give notice of the security
interest of Secured Party in such Accounts to any or all of the Account debtors
obligated to Debtor, (d) to direct such Account debtors to make payment of such
Accounts directly to Secured Party and (e) to take control of such Accounts of
Debtor and the proceeds thereof, and to take possession of all of Debtor's books
and records relating thereto, with full power and authority in the name of
Secured Party or of Debtor to enforce, collect, sue for, receive, and give
receipts for any and all such Accounts. If any Account becomes evidenced by or
if Debtor receives any promissory notes, trade acceptance, chattel paper or
other writing or instrument for the payment of money, Debtor will deliver each
such writing or instrument to Secured Party duly endorsed to the order of
Secured Party as additional Collateral under this Agreement.
Section 5. PRESERVATION AND PROTECTION OF SECURITY INTERESTS. Debtor
shall faithfully preserve and protect Secured Party's security interest in the
Collateral and shall, at its own cost and expense, cause such security interest
to be perfected and continue perfected so long as the Secured Obligations or any
portion thereof are outstanding and unpaid, and for such purpose Debtor shall
from time to time at the request of Secured Party file or record, or cause to be
filed or recorded, such instruments, documents and notices, including without
limitation financing and continuation statements, as Secured Party may deem
necessary or advisable from time to time in order to preserve, perfect and
continue perfected said security interest prior to the rights of any secured
party or lien creditor. Debtor shall do all such other acts and things and shall
execute and deliver all such other instruments and documents, including without
limitation further security agreements, pledges, endorsements, assignments and
notices, as Secured Party may deem necessary or advisable from time to time in
order to perfect and preserve the priority of said security interest as a
perfected lien in the Collateral prior to the rights of any secured party or
lien creditor. Secured Party, and its officers, employees and authorized agents,
or any of them, are hereby irrevocably appointed the attorneys-in-fact of Debtor
to do all acts and things which
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<PAGE> 6
Secured Party may deem necessary or advisable to preserve, perfect and continue
perfected Secured Party's security interest in the Collateral, including without
limitation the signing of financing, continuation or other similar statements
and notices on behalf of Debtor.
Section 6. APPLICATION OF MONEYS. Except as otherwise provided in this
Agreement, if an Event of Default shall have occurred, all net proceeds which
Secured Party shall receive upon realization of the lien and security interest
granted under this Agreement may be applied by or at the direction of Secured
Party, after deducting all reasonable costs and expenses of every kind incurred
therein or incidental to the care, safekeeping or otherwise of any and all of
the Collateral or in any way relating to the rights of Secured Party hereunder,
including reasonable attorneys' fees and legal expenses, to the payment in whole
or in part of the Secured Obligations, in such order as Secured Party may elect.
Any surplus remaining after the payment and satisfaction of all of the Secured
Obligations shall be applied to or on the order of Debtor, its successors or
assigns, or to the person or persons who may be lawfully entitled to receive the
same, or as any court of competent jurisdiction may direct.
Section 7. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents
and warrants to Secured Party as follows:
7.1. TITLE TO PROPERTY. Debtor has legal title to all the
Collateral, subject to no liens, other than Permitted Liens. No financing or
continuation statement which names Debtor as debtor has been filed under the
Uniform Commercial Code other than pursuant to the Permitted Liens and Debtor
has not agreed or consented to cause or to permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether now owned
or hereafter acquired, to be subject to any lien, except the Permitted Liens.
7.2. NO EVENT OF DEFAULT. There does not exist any condition
or circumstance which constitutes, or with the lapse of time or the giving of
notice or both would constitute, an Event of Default.
7.3. INSURANCE. All of the properties and operations of Debtor
of a character usually insured by persons of established reputation engaged in
the same or a similar business similarly situated are adequately insured by
financially sound and reputable insurers, against loss or damage of the kinds
and in the amounts customarily insured against by such persons; and Debtor
carries with such insurers in customary amounts, such other insurance, including
public and product liability insurance, as is usually carried by persons of
established reputation engaged in the same business as Debtor or a similar
business similarly situated.
7.4. PERFECTION OF SECURITY INTERESTS. As of the date of this
Agreement, Debtor has taken or caused to be taken all actions necessary in order
to establish Secured Party's security interests in the Collateral as valid and
perfected liens, prior to all other liens.
7.5. SUBSIDIARIES. Debtor has no subsidiaries and has no
loans, advances or capital contributions to any person presently outstanding
other than Neoprobe Europe AB and Neoprobe Israel AB, both of which are
currently being liquidated by Debtor.
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<PAGE> 7
Section 8. AFFIRMATIVE COVENANTS. On and after the date of this
Agreement, and for so long as any Secured Obligation is outstanding:
8.1. PRESERVATION OF CORPORATE EXISTENCE. Debtor shall
preserve and maintain its corporate existence, rights, franchises and privileges
in the jurisdiction of its incorporation and will qualify and remain qualified
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or for the
ownership of its properties.
8.2. MAINTENANCE OF PROPERTIES. Debtor shall maintain and
preserve in good working order and condition, ordinary wear and tear excepted,
all of its properties which are necessary or useful in the proper conduct of its
business, and will from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements to said properties, subject
to Sections 2.2 and 2.3 of this Agreement.
8.3. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Debtor shall
keep adequate records and books of account in which complete entries will be
made in accordance with GAAP, reflecting all financial transactions of Debtor
relating to the Collateral.
8.4. NOTICE OF DEFAULT. If Debtor has knowledge that any Event
of Default occurs, Debtor shall give prompt notice in writing of such happening
to Secured Party.
8.5. PERFORMANCE OF CONTRACTS, ETC. Debtor shall perform
according to and shall comply with those contractual obligations of Debtor,
non-performance of which would adversely affect the business of Debtor or would
impair the ability of Debtor to perform this Agreement.
8.6. ADDITIONAL INFORMATION. Debtor shall furnish to Secured
Party promptly after Secured Party's request therefor, such other information
respecting the business, properties or condition of operations, financial or
otherwise, of Debtor as may be requested by Secured Party.
8.7. INSURANCE. Debtor shall at all times:
8.7.1. Maintain or cause to be maintained insurance
upon its property with responsible and reputable insurers of such character and
in such amounts as are usually maintained by persons engaged in a like business.
8.7.2. Furnish to Secured Party a statement of
insurance coverage of Debtor in form and detail satisfactory to Secured Party.
8.7.3. Require each policy of insurance to contain
loss payable provisions in favor of and satisfactory to Secured Party and a
provision requiring at least 30 days' prior written notice to Secured Party in
the event of any cancellation or contemplated cancellation of such insurance. To
the extent reasonably obtainable without additional cost to Debtor, all such
policies will further contain agreements by the insurers that any loss will be
payable to Secured
-7-
<PAGE> 8
Party notwithstanding any acts or negligence by Debtor or its subsidiaries which
might otherwise result in forfeiture of said insurance. If Debtor fails to
maintain in full force and effect insurance covering the Collateral as may be
required by this Section 8.7, or fails to pay the premiums thereon when due,
Secured Party may do so for the account of Debtor and add the cost thereof to
the Secured Obligations.
8.7.4. Secured Party shall not be under any duty to
ascertain the existence or adequacy of insurance coverage. Debtor hereby assigns
and sets over unto Secured Party all moneys which may become payable on account
of such insurance covering the Collateral including without limitation any
return of unearned premiums which may be due upon cancellation of any such
insurance, and directs the insurers to pay Secured Party any amount so due.
Secured Party, its officers, employees and authorized agents, are hereby
irrevocably appointed the attorneys-in-fact of Debtor to endorse any draft or
check which may be payable to Debtor in order to collect the proceeds of such
insurance or any return of unearned premiums. Any balance of insurance proceeds
remaining in the possession of Secured Party after payment in full of the
Secured Obligations shall be paid to Debtor or Debtor's order as Debtor shall
instruct Secured Party.
8.8. RISK OF LOSS. As of the execution of this Agreement,
Debtor shall assume all risk of loss of, damage to, or destruction of the
Collateral to the extent that Debtor now or hereafter has or acquires any right,
title and interest in the Collateral.
8.9. MAINTENANCE OF COLLATERAL.
8.9.1. Debtor shall (a) pay and discharge all taxes,
assessments, fees, and other governmental charges or levies imposed upon it as
well as all lawful claims of materialmen, mechanics, carriers, warehousemen,
landlords and other similar persons for labor, materials, supplies and rentals
which, if unpaid, might by law become a lien on the Collateral or any part
thereof and (b) perform according to and maintain in force all leases which are
Collateral; PROVIDED, HOWEVER, that Debtor shall not be required to make any
payment pursuant to this Section 8.9 if (x) the amount, applicability, or
validity thereof is being contested currently in good faith by appropriate
proceedings, (y) Debtor shall have set aside on its books, in accordance with
GAAP applied on a consistent basis, adequate reserves or provisions with respect
thereto, and (z) the title of Debtor to, and its right to use, any of its
properties is not materially and adversely affected thereby.
8.9.2. If Debtor fails to make any payments it is
required to make under this Section 8.9, Secured Party may do so for the account
of Debtor and may add the amount of such payments to the Secured Obligations.
8.10. USE OF COLLATERAL. The Collateral will be used
exclusively in the business operations of Debtor.
8.11. ANNUAL CERTIFICATE. Debtor shall furnish to Secured
Party as soon as practicable after the end of each fiscal year of Debtor, and in
any event within 90 days thereafter, a
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<PAGE> 9
certificate by the chief executive officer or the president of Debtor in form
and substance satisfactory to Secured Party, addressed to Secured Party and
stating that based upon the law in effect on the date of such certificate, no
filing, registration or recording of any financing statement, amendments
thereto, continuation statements or instruments of a similar character relating
to the Collateral is required by law or will be required by law during the 12
calendar months commencing on the next following anniversary date in order to
preserve and protect the priority of the security interest of Secured Party as a
perfected security interest in the Collateral prior to the rights of any other
secured party or lien creditor, or if such filing, registration, recording,
refiling, reregistration or rerecording is necessary or will be necessary during
the 12 calendar months commencing on the next following anniversary date,
setting forth the requirements in respect thereto. Promptly after any filing,
recording, refiling or rerecording of any such financing statement or amendment
thereto or continuation statement or instrument, Debtor shall deliver to Secured
Party another certificate by the chief executive officer or president, stating
that such filing, registration, recording, refiling, reregistration or
rerecording has been duly accomplished and setting forth the particulars
thereof.
Section 9. NEGATIVE COVENANTS. On and after the date of this
Agreement and so long as Secured Obligations are outstanding, Debtor shall not:
9.1. MERGERS, CONSOLIDATIONS, ETC. Merge with or into or
consolidate with any entity; PROVIDED, HOWEVER, that Debtor may merge or
consolidate with another entity so long as the obligations hereunder are assumed
by the surviving entity.
9.2. NEGATIVE PLEDGE. Without the prior written consent of
Secured Party (a) sell, assign, or transfer any of its right, title and interest
in the Collateral except the sale of Debtor's Inventory in the ordinary course
of business, (b) grant or create or permit to exist any lien on or in any of the
Collateral except for Permitted Liens, (c) permit any levy or attachment to be
made against any of the Collateral, or (d) file any financing statement with
respect to any of the Collateral.
9.3. CHANGE OF NAME. Change its corporate name.
Section 10. CARE AND MAINTENANCE OF COLLATERAL BY THE SECURED PARTY.
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of such of the Collateral as may be in Secured Party's
possession if Secured Party takes such action for that purpose as Debtor shall
request in writing, PROVIDED, HOWEVER that Secured Party shall not be required
to take any such requested action if in the judgment of Secured Party, such
action would impair Secured Party's security interest in such Collateral or its
rights in, or the value of, such Collateral, and PROVIDED, FURTHER, HOWEVER that
such written request is received by Secured Party in sufficient time to permit
Secured Party to take the requested action. Debtor acknowledges that failure of
Secured Party to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care, and no failure of Secured Party to preserve
or protect any rights with respect to such Collateral against prior parties, or
to do any act with respect to the preservation of such Collateral not so
requested by Debtor, shall be deemed a failure to exercise reasonable care in
the custody or preservation of such Collateral. If all or any part of the
Collateral consists of any
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<PAGE> 10
stock, bond or other security, Secured Party shall be under no obligation to
sell or otherwise dispose of such security, or to cause such security to be sold
or otherwise disposed of, by reason of any diminution in the fair market value
thereof, and Secured Party's failure to do so shall under no circumstances be
deemed a failure to exercise reasonable care in the custody and preservation of
the Collateral, anything in this Section 10 or in any other section of this
Agreement notwithstanding.
Section 11. REMEDIES FOR EVENT OF DEFAULT.
11.1. REMEDIES. If an Event of Default occurs, in addition to
the remedies set forth in the Agreement and the other Loan Documents:
11.1.1. Secured Party may exercise such rights and
remedies as are provided by the Uniform Commercial Code, including without
limitation the right to enter any premises where any of the Collateral is
located and take possession of the same without demand or notice and without
prior judicial hearing or legal proceedings, which Debtor hereby expressly
waives, and to sell all or any portion of the Collateral at public or private
sale, without prior notice to Debtor except as otherwise required by law (and if
notice is required by law, after 10 days' prior written notice), at such place
or places and at such time or times and in such manner and upon such terms,
whether for cash or on credit, as Secured Party in its sole discretion may
determine. Upon any such sale of any of the Collateral, Secured Party may
purchase all or any of the Collateral being sold, free from any equity or right
of redemption. Secured Party shall apply the proceeds of any such sale to the
Secured Obligations as provided in Section 6 hereof. If such proceeds are
insufficient to pay the amounts owed by Debtor, Debtor shall be liable for any
deficiency in the amount so realized from the Collateral.
11.1.2. Debtor shall, upon the demand of Secured
Party, promptly assemble the Collateral, or any part thereof and make it
available to Secured Party at a place to be designated by Secured Party which
shall be reasonably convenient to Secured Party and Debtor. The right of Secured
Party under this Section 11.1.2 to have the Collateral assembled and made
available to it is of the essence of this Agreement and Secured Party may, at
its election, enforce such right by an action for specific performance.
11.2. NO REQUIREMENT TO MARSHAL COLLATERAL. Debtor, to the
extent that it has any right, title or interest in any of the Collateral, waives
and releases any right to require Secured Party to collect any of the Secured
Obligations from any portion of the Collateral under any theory of marshaling of
assets, or otherwise, and specifically authorizes Secured Party to apply any of
its Collateral against any of the Secured Obligations in any manner that Secured
Party may determine.
Section 12. AMENDMENTS, WAIVERS. No amendment, modification or waiver
to this Agreement shall be binding unless in writing and signed by the party to
be charged.
Section 13. PERMITTED LIENS. Liens arising from purchase money security
interests so long as (a) the lien is for no more than 90% of the purchase price
of the property and (b) such lien
-10-
<PAGE> 11
attaches only to the property acquired by Debtor in connection therewith shall
be deemed "Permitted Liens."
Section 14. DEFEASANCE. Upon payment and performance in full of the
Secured Obligations, and all reasonable costs and expenses incurred by Secured
Party in the realization upon the Collateral, including without limitation,
reasonable attorneys' fees and legal expenses, this Agreement shall terminate
and be of no further force and effect, and in such event, Secured Party shall,
at the expense of Debtor, take all action necessary to terminate the security
interests of Secured Party in the Collateral. Until such time, however, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
Section 15. GOVERNING LAW. This Agreement is being executed and
delivered in the State of Ohio and, except to the extent that the laws of any
other jurisdiction are mandatorily applicable, shall in all respects be
interpreted in accordance with the laws of the State of Ohio applicable to
contracts to be performed in the State of Ohio.
Section 16. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument.
Section 17. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties hereto and supersedes any and all prior agreements,
arrangements, and understandings relating to the subject matter hereof. No
representation, promise, inducement, or statement of intent has been made by any
party which is not embodied in this Agreement, and no party shall be bound by or
be liable for any alleged representation, promise, inducement or statement of
intention not embodied herein.
Section 18. ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
Section 19. CAPTIONS. Captions and section headings used in this
Agreement are for convenience only and shall not affect the construction of this
Agreement.
Section 20. CONFESSION OF JUDGMENT. The Debtor hereby authorizes any
attorney at law to appear for it, in an action on this Security Agreement, as
herein provided, in any court of record in or of the State of Ohio, or
elsewhere, to waive the issuing and service of process against the Debtor and to
confess judgment in favor of the holder of the Security Agreement against the
Debtor for the amount that may be due, with interest at the rate therein
mentioned and costs of suit, and to waive and release all errors in said
proceedings and judgment, and all petitions in error, and right of appeal from
the judgment rendered.
Section 21. WAIVER OF JURY TRIAL. THE SECURED PARTY AND THE DEBTOR
HEREBY VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
-11-
<PAGE> 12
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE SECURED PARTY AND THE
GUARANTOR ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THE DEBTOR AND THE SECURED PARTY IN CONNECTION
WITH THE SECURITY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR THE TRANSACTIONS RELATED HERETO
OR THERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE SECURED PARTY TO
ENTER INTO THE FINANCING TRANSACTIONS WITH DEBTOR. IT SHALL NOT IN ANY WAY
AFFECT, WAIVE, LIMIT, AMEND OR MODIFY THE SECURED PARTY'S ABILITY TO PURSUE ITS
REMEDIES INCLUDING, BUT NOT LIMITED TO, ANY CONFESSION OF JUDGMENT OR COGNOVIT
PROVISION CONTAINED HEREIN OR IN ANY OTHER DOCUMENT RELATED HERETO.
The parties hereto have caused this Agreement to be duly executed by
their respective duly authorized officers as of the day and year first above
written.
================================================================================
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
================================================================================
NEOPROBE CORPORATION, a Delaware
corporation
By: /s/ David C. Bupp
------------------------------------------
Name: David C. Bupp
Its: President and Chief Executive Officer
THE PROVIDENT BANK, an Ohio banking
corporation
By: /s/ Michael D. Davis
------------------------------------------
Name: Michael D. Davis
Its: Vice President
-12-
<PAGE> 13
EXHIBIT A
COLLATERAL AND LOCATION
Collateral Location
- ---------- --------
Inventory Cord Logistics
1135 Heil Quaker Blvd., Suite 100
LaVergne, TN 37806
All Other Collateral Neoprobe Corporation
425 Metro Place North, Suite 300
Dublin, Ohio 43017
-13-
<PAGE> 1
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
Exhibit 10.4.37
TERMINATION AGREEMENT
This Termination Agreement ("Termination Agreement") made this 30th day
of September 1999, by and between Neoprobe Corporation, ("Neoprobe") and Kol
Bio-Medical Instruments, Inc., ("Kol").
RECITALS:
WHEREAS, Kol and Neoprobe entered into a Sales and Marketing Agreement
dated January 26, 1999 (the "Sales and Marketing Agreement"); and
WHEREAS, The parties desire to mutually terminate the Sales and
Marketing Agreement in accordance with the terms and conditions of this
Termination Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the recitals set forth above, which are hereby incorporated by reference
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Termination. Effective on September 30, 1999 (the "Effective
Date of Termination"), the Sales and Marketing Agreement shall
be terminated by the mutual agreement of the parties hereto
and except as specifically set forth in this Termination
Agreement, which the parties intend to be a substituted
contract for the Sales and Marketing Agreement, the parties
shall have no further obligation or remedies arising under the
Sales and Marketing Agreement.
2. Actions of the Parties. The parties agree to do the following:
2.1 Between the date of this Termination Agreement and
the Effective Date of Termination, Kol shall continue
to comply with the provisions of Article V of the
Sales and Marketing Agreement, except that Section
5.01 shall be inapplicable commencing with the date
of this Termination Agreement.
2.2 Neoprobe shall pay to Kol all outstanding commissions
for Products shipped prior to the Effective Date of
Termination. July and August commissions
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
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
previously due but unpaid in the amount of $93,187.92
shall be paid to Kol on the Effective Date of
Termination. Commissions (net of reimbursements to
Neoprobe for Clinical Specialists' sales commissions
and expenses, as previously agreed) due for the
period up to and including the Effective Date of
Termination shall be paid to Kol on or before October
15, 1999.
2.3 Neoprobe shall repurchase from Kol and Kol shall
resell to Neoprobe all of Neoprobe's Products,
demonstration cases and accessories in Kol's
inventory and in the inventory of Kol's Sub-Agents
("Products in Inventory"), as more particularly set
forth on Schedule 2.3 attached hereto and
incorporated by reference herein.
2.4 Unless otherwise agreed to by the parties, within
twenty business (20) days after the Effective Date of
Termination, (i) Kol shall ship to Neoprobe's
designated facility, Plexus, all Products in
Inventory previously shipped by Neoprobe to Kol but
not yet paid for by Kol. Payment for all such
Products in Inventory shall be made in accordance
with the provisions of Section 2.5. Kol shall ship
all Products in Inventory using a carrier chosen by
Neoprobe for delivery to Neoprobe's designated
facility. All freight costs for such shipments shall
be paid by Neoprobe. Neoprobe agrees ***. Neoprobe
shall pay Kol for Products in Inventory as follows:
the sum of $1,000,000 (i) less the outstanding A/R of
***; (ii) less Product in Inventory not passing the
inspection conducted pursuant to Section 2.5@ the
invoiced cost; (iii) less Product not returned @
invoiced cost.
2.5 All Products in Inventory repurchased by Neoprobe
pursuant to Section 2.3 shall be in reasonable
condition and have not been subjected to excessive
wear and tear ("Conforming Condition"). The parties
shall cooperate with each other to arrange the
inspection of the Products in Inventory, within ten
(10) days, at the facilities of Plexus by a Kol
representative and a Neoprobe representative
reasonably acceptable to Kol. Upon completion of the
inspection by Neoprobe, Neoprobe shall pay Kol for
all Products in Inventory determined by Neoprobe to
be in Conforming Condition, within fifteen (15) days
after the inspection.
2.6 Any dispute with regard to whether the Products in
Inventory are in Conforming Condition shall be
resolved by binding arbitration conducted by
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 3
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
a single arbitrator from the American Arbitration
Association (the "AAA"). The place of arbitration
shall be Fairfax, Virginia.
2.7 Neoprobe shall ***.
2.8 Kol agrees that it will use reasonable efforts to
transition records (from Kol and its Sub-Agents)
regarding sales of Products during the term of the
Sales and Marketing Agreement by turning over to
Neoprobe sales records, key contacts and project
lists. Neoprobe shall have the right to use all such
records in its business.
3. Termination Payment. Neoprobe shall pay to Kol a termination
payment in the amount of $700,000 as follows: (i) $350,000
payable on or before October 29, 1999; and (ii) $350,000
payable on or before November 29, 1999. All payments made
pursuant to this Section 2.5 shall be made by wire transfer.
The parties agree that in the event Kol enters into an
agreement with Neoprobe's world-wide distribution partner for
continued sales and marketing activities relating to
Neoprobe's products, which Kol may or may not enter into at
its sole and absolute discretion, Kol agrees to ***. Neoprobe
shall remain liable for the full amount due under the
termination payment owed by Neoprobe to Kol pursuant to this
Section 3.
4. Non-competition After Termination. Provided that Kol is
receiving the fee as specified by Section 2.4, Kol agrees that
it will not distribute, market promote or sell a product
competitive with the Products covered by the Sales and
Marketing Agreement for a period of six (6) months following
the Effective date of Termination.
5. Incorporation of Provisions of the Sales and Marketing
Agreement. The obligations of confidentiality as provided in
Article X and indemnification as provided in Article IX of the
Sales and Marketing Agreement are hereby incorporated by
reference into this Termination Agreement in their entirety
and shall expressly survive the termination of the Sales and
Marketing Agreement and continue in full force and effect.
6. Returned Product. Neoprobe shall notify Kol on or before
October 31, 1999 of any Product sold by Kol prior to the
Effective Date of Termination that is returned by a customer
to Neoprobe for credit between the Effective Date of
Termination and October 31, 1999. Kol shall return toNeoprobe
any commission on the sale of such
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 4
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
returned Product paid by Neoprobe to Kol prior to the
Effective Date of Termination on or before November 15, 1999.
7. Mutual Releases.
7.1 Except for the obligations of the parties pursuant to
the terms of this Termination Agreement, and as
otherwise set forth herein, Neoprobe hereby releases
and forever discharges Kol, its officers, directors,
employees, agents, heirs, assigns and successors (the
"Kol Releasees") from and on account of all claims,
liabilities, obligations, debts, demands, actions,
causes of action, covenants, contracts,
controversies, agreements, promises, doings, acts,
omissions, trespasses, damages and other demands and
claims of every kind and nature, both in law and in
equity, that Neoprobe or any of its officers,
directors, employees, agents, successors of assigns
ever had, now has or may have in the future against
the Kol Releasees, arising out of the occurrence of
any act, transaction, matter or event, from the
beginning of the world to the date of this
Termination Agreement, whether fixed or contingent,
known or unknown, specifically including, but not
limited to, all claims arising out of or relating to
the Sales and Marketing Agreement, but excluding
claims for breach or non-performance of this
Termination Agreement.
7.2 Except for the obligations of the parties pursuant to
the terms of this Termination Agreement, and as
otherwise set forth herein, Kol hereby releases and
forever discharges Neoprobe, its officers, directors,
employees, agents, heirs, assigns and successors (the
"Neoprobe Releasees") from and on account of all
claims, liabilities, obligations, debts, demands,
actions, causes of action, covenants, contracts,
controversies, agreements, promises, doings, acts,
omissions, trespasses, damages and other demands and
claims of every kind and nature, both in law and in
equity, that Kol or any of its officers, directors,
employees, agents, successors of assigns ever had,
now has or may have in the future against the
Neoprobe Releasees, arising out of the occurrence of
any act, transaction, matter or event, from the
beginning of the world to the date of this
Termination Agreement, whether fixed or contingent,
known or unknown, specifically including, but not
limited to, all claims arising out of or relating to
the Sales and Marketing Agreement, but excluding
claims for breach or non-performance of this
Termination 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.
<PAGE> 5
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
8. Entire Agreement. This Termination Agreement contains the
entire agreement of the parties and there are no other
understandings or agreements other than this Termination
Agreement; all prior agreements, representations, promises or
statements, whether oral or in writing, are of no effect
except as may be provided in this Termination Agreement may
not be changed orally, but only by an agreement in writing
signed by all parties. This Termination Agreement shall
supersede and abrogate in its entirety the Sales and Marketing
Agreement. The parties agree to look only to the provisions of
this Termination Agreement for a determination of their rights
and obligations in relation to each other.
9. Waiver of Breach. A non-breaching party's waiver of a breach
by the breaching party of any provision of this Termination
Agreement shall not operate as or be construed as a waiver of
any subsequent breach by the breaching party.
10. Public Announcements. The parties agree that they shall not
disparage each other nor make any statements regarding their
relationship and the termination thereof that reflects
adversely on the performance of the other.
11. Binding Effect. This Termination Agreement shall inure to the
benefit of and shall be binding on the Kol and Neoprobe and
their respective successors and assigns.
12. Attorneys fees. In the event that Neoprobe fails to pay any
amount due to Kol pursuant to this Termination Agreement, Kol
shall be entitled to recover all of its reasonable attorneys'
fees and costs, including but not limited to expert witness
fees or expenses, incurred in the prosecuting any such action
against Neoprobe.
13. Choice of Forum. Any claim or cause of action arising out of
or connected with this Termination Agreement shall be brought
exclusively in either the U.S. District Court for the Eastern
District of Virginia (subject to the statutory basis for
jurisdiction) or the Circuit Court of Fairfax County,
Virginia, and the parties hereto consent to submit to the
personal jurisdiction of such courts, and waive all objections
to such jurisdiction and venue. If either party is not a
resident of the Commonwealth of Virginia at the time of such
action, then such Party irrevocably appoints the Secretary of
the Commonwealth of Virginia as agent for the purpose of
accepting service of process in Virginia.
14. Severability. The invalidity or unenforceability of any
provision of this Termination Agreement shall not affect the
validity or enforceability of any other provision of this
Termination Agreement, unless doing so would materially alter
the respective
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 6
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
benefits and burdens of the parties, in which case this
Termination Agreement shall be either reformed by mutual
agreement of the parties or invalidated.
15. Modification. This Termination Agreement may not be changed
orally, but only by an agreement in writing signed by all
parties.
16. Captions. Captions provided in this Termination Agreement are
used solely for convenience and are not to be used in
construing or interpreting this Termination Agreement.
17. Counterparts. This Termination Agreement may be executed in
multiple counterparts, which shall be deemed an original but
all of which together shall constitute one and the same
instrument.
18. Construction. Both parties have had the advice and assistance
of their counsel in the negotiation and execution of this
Termination Agreement. The language in all parts of this
Termination Agreement shall in all cases be construed as a
whole, according to its fair meaning, and not strictly for or
against either party. The parties expressly agree that the
principle of contract interpretation that ambiguities are
construed against the drafting party shall not apply.
19. Notice. Except as otherwise stated in this Termination
Agreement, any notice, request, instruction, approval or other
communication given hereunder by any party hereto shall be in
writing and hand-delivered against receipted copy; mailed by
registered or certified mail, postage prepaid, return receipt
requested; telecopied (with hard copy sent via U.S. mail
within one (1) business day after the facsimile notice is
transmitted) or delivered by Fed Ex or other similar overnight
courier, to the following addresses:
If to Kol at: 13901 Willard Road
P.O Box 220630
Chantilly, Virginia 22022
If to Neoprobe at: 425 Metro Place North
Suite 300
Dublin, Ohio 43017-1367
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 7
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
or to such other address as either party may hereafter
designate to the other by notice similarly given. If mailed as
aforesaid, notice shall be deemed given three (3) business
days after being deposited in the United States mail; if
telecopied, notice shall be deemed given when telecopied on a
business day and such telecopy is received before 5:00 p.m.
Eastern Time by the addressee thereof; otherwise, such notice
by telecopy shall be deemed given on the next succeeding
business day; 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.
<PAGE> 8
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
if sent by overnight courier, notice shall be deemed given on
the next business day after being deposited with the overnight
courier service.
IN WITNESS WHEREOF, the parties have affixed their hands and seals to
this Termination Agreement effective on the day and year first set forth above.
Neoprobe Corporation
by: /s/ David C. Bupp (SEAL)
-----------------------------------
David Bupp, President, CEO
Kol Bio-Medical Instruments, Inc.,
by: /s/ Roger S. Kolasinski (SEAL)
-----------------------------------
Roger S. Kolasinski, Chairman
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 9
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
<TABLE>
SCHEDULE 2.3
PRODUCTS IN INVENTORY
<CAPTION>
PURCHASE INVOICE INVOICE ITEM
CUSTOMER ORDER NUMBER DATE QTY ITEM DESCRIPTION
- -------- ----- ------ ---- --- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
*** *** *** *** *** *** ***
<CAPTION>
CONTROL UNIT PROBE UNIT INVOICE AMOUNT A/R
SERIAL NO. SERIAL NO. PRICE AMOUNT PAID BALANCE 2000 14MM 12U 12C 19U
---------- ---------- ----- ------ ---- ------- ---- ---- --- --- ---
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
*** *** *** *** *** *** *** *** *** *** ***
</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.
<PAGE> 1
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
Exhibit 10.4.38
AMENDMENT TO TERMINATION AGREEMENT
This Amendment to Termination Agreement ("Amendment") is made effective October
1, 1999, by and between Neoprobe Corporation, ("Neoprobe") and Kol Bio-Medical
Instruments, Inc. ("Kol").
RECITALS:
WHEREAS, Kol and Neoprobe entered into a Termination Agreement dated September
30, 1999 (the "Termination Agreement") which terminated the Sales and Marketing
Agreement dated January 26, 1999 (the "Sales and Marketing Agreement") between
the parties; and
WHEREAS, The parties desire to amend the Termination Agreement as set forth
herein:
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
recitals set forth above, which are hereby incorporated by reference herein, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. Paragraph 1 of the Termination Agreement shall be deleted in its
entirety and in lieu thereof; the following shall be substituted:
"1. Termination. Effective on October 31, 1999 (the "Effective
Date of Termination"), the Sales and Marketing Agreement shall
be terminated by the mutual agreement of the parties hereto
and except as specifically set forth in this Termination
Agreement, which the parties intend to be a substituted
contract for the Sales and Marketing Agreement, the parties
shall have no further obligation or remedies arising under the
Sales and Marketing Agreement."
2. Paragraph 2.2 of the Termination Agreement shall be deleted in its
entirety and in lieu thereof, the following shall be substituted:
"2.2 Neoprobe shall pay to Kol all outstanding commissions for
Products shipped prior to September 30, 1999 as follows: (i)
July and August commissions previously due but unpaid in the
amount of *** have been paid on or before September 30, 1999:
(ii) September commissions *** shall be paid on October 15,
1999; and (iii) commissions for October 1999 *** shall be paid
on or before November 30, 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
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2.
3. Paragraph 2.4 of the Termination Agreement shall be amended by
substituting "fifteen business (15)" for "twenty business (20)" in the
first line.
4. Paragraph 6 of the Termination Agreement shall be modified as follows:
(i) October 31, 1999 in the first and fourth line shall be changed to
November 30, 1999; and (ii) November 15, 1999 in the last line shall be
changed to December 15, 1999.
5. Except as set forth herein, all of the terms and conditions of the
Termination Agreement shall remain in full force and effect.
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.
IN WITNESS WHEREOF, the parties have affixed their hands and seals to this
Amendment to Termination Agreement effective on the day and year first set forth
above.
Neoprobe Corporation
By: /s/ David C. Bupp (SEAL)
--------------------------------------------
David C. Bupp, President/CEO
Kol Bio-Medical Instruments, Inc.
By: /s/ Roger S. Kolasinski (SEAL)
--------------------------------------------
Roger S. Kolasinski, Chairman
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by "***" in this Exhibit.
<PAGE> 1
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
EXHIBIT 10.4.39
DISTRIBUTION AGREEMENT
This is an Agreement dated and effective as of the last date of
signature below ("Effective Date"), by and between Ethicon Endo-Surgery, Inc. a
corporation organized under the laws of the State of Ohio, having a business
address at 4545 Creek Road, Cincinnati, Ohio 45242 ("Ethicon"); and Neoprobe
Corporation, a corporation organized under the laws of the State of Delaware,
having a business address at 425 Metro Place North, Suite 300, Dublin, Ohio
43017 ("Neoprobe", together with Ethicon, the "Parties", and each a "Party").
ARTICLE 1 - BACKGROUND
----------------------
1.1 Ethicon manufactures and markets surgical instruments and
accessories for minimally invasive surgery, including trocars, staplers,
ligation devices, hand-held instruments, retractors, manipulation devices,
electrosurgery and diagnostic surgical products.
1.2 Neoprobe manufactures and markets radiation detection devices,
including but not limited to, devices for use in intraoperative lymphatic
mapping ("ILM") and gamma radiation guided surgery.
1.3 Ethicon has developed and continues to develop certain technology,
know how, intellectual property, devices and instruments for use in ILM and
gamma radiation guided surgery.
1.4 The devices manufactured and marketed by Neoprobe complement
Ethicon's surgical instruments and accessories for minimally invasive surgery,
ILM and gamma radiation guided surgery and the Parties desire that Ethicon
distribute the Products (as defined below) on a worldwide exclusive basis
pursuant to the terms of this Agreement.
1.5 The Parties entered into a standstill and rights agreement (the
"Standstill and Rights Agreement") on August 10, 1999, pursuant to which Ethicon
paid Neoprobe four hundred thousand dollars ($400,000.00) in consideration of
Neoprobe obligations in the Standstill and Rights Agreement.
1.6 In connection with a good faith purchase order placed by Ethicon
***, Neoprobe placed purchase orders with the appropriate vendors to fill the PO
in accordance with the terms thereof.
Therefore, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, the Parties agree as follows:
ARTICLE 2 - DEFINITIONS
The following terms, when used with initial capital letters, shall have
the following meanings:
2.1 "Affiliate" is any entity that directly or indirectly controls, is
controlled by, or is under common control with a specified Party, and for such
purpose "control" shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of the entity,
whether through the ownership of voting securities, by contract or otherwise.
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
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
2.2 A "Change of Control" shall be deemed to have occurred if (A) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Neoprobe representing 30% or more of the
combined voting power of Neoprobe's then outstanding securities; or (B) the
stockholders of Neoprobe approve a merger or consolidation of Neoprobe with any
other corporation, other than a merger or consolidation which would result in
the voting securities of Neoprobe outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 80% of the combined
voting power of the voting securities of Neoprobe or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of Neoprobe approve a plan of complete liquidation of Neoprobe or an agreement
for the sale or disposition by Neoprobe of all or substantially all of
Neoprobe's assets.
2.3 "Commercial Year" shall mean a one (1) year period commencing on
January 1 and any anniversary thereof during the term of this Agreement.
2.4 "Control Unit" shall mean a gamma radiation detection device
including a microcomputer-based unit which measures the presence of
gamma-emitting isotopes, including, but not limited, to the model 2000 Control
Unit.
2.5 "First Commercial Year" is the one (1) year period commencing on
January 1, 2000. The four (4) years following the First Commercial Year shall be
referred to as the "Second", "Third", "Fourth" and "Fifth" Commercial Years,
respectively.
2.6 "Gross Profit" is the difference between Neoprobe's cost as
indicated in Schedule 5.2 and the Transfer Price indicated in Schedule 5.2.
2.7 "Improved Product" or "Improved Products" shall mean an enhancement
or modification to an existing Product.
2.8 "Insolvency Event" shall mean the occurrence of any of the
following events:
(a) Neoprobe shall admit in writing its inability, or be
generally unable, to pay its debts as such debts become due; or
(b) Neoprobe shall (1) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property, (2) make a general
assignment for the benefit of its creditors, (3) commence a voluntary case under
the United States Bankruptcy Code, as now or hereafter in effect (the
"Bankruptcy Code"), (4) file a petition seeking to take advantage of any other
law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, (5) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
any involuntary case under the Bankruptcy Code, or (6) take any corporate action
for the purpose of effecting any of the foregoing; or
(c) A proceeding or case shall be commenced by or against
Neoprobe in any court of competent jurisdiction, seeking (1) its liquidation,
reorganization, dissolution or winding-up, or the composition or readjustment of
its debts, (2) the appointment of a trustee, receiver, custodian, liquidator or
the like of Neoprobe or of all or any substantial part of its assets, or (3)
similar relief in respect of Neoprobe under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect for a period of ninety (90) days;
or an order for relief against Neoprobe shall be entered in a case under the
Bankruptcy Code.
2.9 "Know-How" shall mean all know-how relating to the design,
development, manufacture, sale or use of any Product or Improved Product,
including, without limitation, processes, techniques, methods, products,
apparatuses, materials and compositions which are reasonably related thereto.
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 3
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
2.10 "New Product" shall mean an instrument or device developed by or
for Neoprobe prior to and/or during the term of this Agreement and any
extensions thereof other than a Product or Improved Product.
2.11 "Patent Applications" are the U.S. Patent applications listed in
Schedule 2.11 hereto; all foreign counterparts of such applications; and all
continuations, continuations-in-part, and divisionals of such applications.
2.12 "Patents" are the U.S. Patents listed in Schedule 2.11 hereto and
any patents subsequently issuing from the Patent Applications as well as
renewals, reissues, reexaminations, extensions, and patents of addition and
patents of importation. Furthermore, Patents shall also include each patent,
U.S. or foreign, which Neoprobe owns or is empowered to grant a license to
Ethicon prior to or during the term of this Agreement or any extension thereof,
the practice of which is reasonably necessary for Ethicon to sell the Product.
2.13 "Probe" shall mean a hand-held gamma radiation-sensing device that
connects to a Control Unit.
2.14 *** shall mean a device that provides a *** Control Unit.
2.15 "Product" or "Products" shall mean instruments and devices used for
radiation detection, including but not limited to, Neoprobe portable
radioisotope detector systems, probes and related accessories set forth on
Schedule 2.15 attached hereto as may be amended from time to time by mutual
agreement of the Parties or a New Product added to Schedule 2.15 pursuant to
Section 5.7 or Section 6.2.
2.16 "Raw Materials" shall mean the materials, components, and packaging
required to manufacture and package any Product in accordance with the
Specifications.
2.17 "Regulatory Compliance" shall mean compliance with (i) all
applicable statutes, laws, and regulations, including good manufacturing
practices ("GMP") and (ii) Ethicon Endo-Surgery, Inc. Quality Assurance
Requirements, which are attached and incorporated into this Agreement as Exhibit
2.17.
2.18 "Specifications" shall mean the requirements with which the Product
must conform as specified by 21 CFR Section 820.181 and include device
specifications, production process specifications, quality assurance procedures
and specifications, packaging and labeling specifications, and installation,
maintenance and servicing procedures and methods that are contained in the
Device Master Record for the Product.
2.19 "Trademarks" shall mean the (i) U.S. and foreign marks set forth in
Schedule 2.19 hereto; (ii) any unregistered trademarks used in connection with
Products; and (iii) all copyrights or distinctive features of the packaging,
including but not limited to trade dress, used in connection with the Products.
2.20 "Year 2000 Compliance" shall mean: (a) the Products perform in a
consistent manner and functions without interruptions regardless of the date in
time on which the Product is delivered, used and/or further distributed, whether
before, on or after January 1, 2000 and whether or not the dates are affected by
leap years;
(b) the Product, if computerized, accept, calculate, compare,
sort, extract, sequence and otherwise process date inputs and date values, and
return and display date values and perform, in a consistent manner regardless of
the dates used, whether before, on or after January 1, 2000;
(c) the Product, if computerized, accept and respond to
two-digit year-date input in a manner that resolves any ambiguities as to the
century in a defined, predetermined and appropriate manner; 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.
<PAGE> 4
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
(d) the Product, if computerized, store and display date
information in ways that are unambiguous as to the determination of the century.
ARTICLE 3 - APPOINTMENT
-----------------------
3.1 DISTRIBUTION RIGHTS. Subject to the terms and conditions of this
Agreement, and specifically to the terms and conditions of Sections 3.2 and 3.3
below, Neoprobe hereby appoints Ethicon, and Ethicon hereby accepts the
appointment as Neoprobe's exclusive distributor on a worldwide basis during the
term of this Agreement and any extension thereof at the agreed upon Transfer
Prices (as defined below).
3.2 THIRD PARTY RIGHTS. The granting to Ethicon by Neoprobe of the
rights in Section 3.1 shall be on a country-by-country basis subject to
Neoprobe's termination of distribution and similar rights granted to third
parties by Neoprobe or its Affiliates ("Third Party Agreements"). Neoprobe
represents and warrants that Schedule 3.2 accurately sets forth all countries
where any such Third Party Agreement is in effect. Neoprobe represents and
warrants that it has contractual rights which enable it to rightfully terminate
such Third Party Agreements in accordance with the time lines set forth in
Schedule 3.2 and covenants to take such actions and rightfully terminate all
such Third Party Agreements as soon as practicable in a manner that would not
prejudice the non-competition provisions imposed on such third parties therein
and to deliver exclusive distribution rights pursuant to Section 3.1 to Ethicon
on or before the dates set forth Schedule 3.2. Neoprobe agrees to indemnify and
hold harmless Ethicon and its Affiliates and their respective officers,
directors, employees and agents from and against any liability, loss, costs
(including reasonable attorneys' fees), expenses or damages that are
attributable to claims of third parties against Ethicon arising out of
Neoprobe's efforts to terminate the rights of such third parties as contemplated
by this Section 3.2. This obligation shall survive termination of this
Agreement. Neoprobe agrees that upon the termination of each of the Third Party
Agreements, the right to distribute the Products in the territories covered by
such Third Party Agreement ***.
3.3 SUPPLY TO THIRD PARTIES. Neoprobe grants Ethicon ***. As used in this
Section 3.3 the term "supply" shall mean, filling purchase orders (either to
Neoprobe or directly to Ethicon), and shipping, invoicing, and collecting for
such orders according to the applicable terms of ***. Neoprobe agrees to forward
any purchase orders for Products it receives to Ethicon promptly (but in any
event within five (5) business days of receipt of the purchase order). Ethicon
shall pay Neoprobe for Products shipped to such distributors in accordance with
Section 5.2 herein. Ethicon's sales of Products *** Product covered by this
Agreement.
ARTICLE 4 - TERM
----------------
The initial term of this Agreement (the "Initial Term") shall
commence on the Effective Date and shall continue until December 31, 2004 (the
"Initial Term Date"), unless earlier terminated as expressly provided under the
terms of this Agreement; PROVIDED, HOWEVER, that Ethicon shall have the option
(the "Option") of extending the term of this Agreement for two (2) subsequent
two (2) year periods *** (in Ethicon's sole reasonable judgment) than the
immediately preceding Commercial Year. Neoprobe shall deliver to Ethicon written
notice (the "Renewal Notice") setting forth the Initial Term Date not less than
one (1) year nor more than one (1) year and thirty (30) days prior to such date
or the date of the expiration of any such period of extension, as the case may
be. In the event that Ethicon exercises the Option, it shall deliver to Neoprobe
written notice thereof within ninety (90) days following its receipt of the
Renewal Notice.
ARTICLE 5 - RESPONSIBILITIES OF THE PARTIES
-------------------------------------------
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 5
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
5.1 SUPPLY OF THE PRODUCT. During the term of this Agreement, Neoprobe
shall manufacture and sell the Products and Improved Products exclusively to
Ethicon in accordance with the Specifications, and shall not sell, supply or
distribute any Products or Improved Products to any third party. Neoprobe shall
supply Ethicon (and its Affiliates) with all of those quantities of Products as
ordered by Ethicon (and its Affiliates) pursuant to this Agreement.
5.2 TRANSFER PRICING. The transfer price (the "Transfer Price") for each
type of Product shipped by Neoprobe during the term of this Agreement shall be
set forth on Schedule 5.2 hereto. The Transfer Prices set forth therein include
all costs of packaging in accordance with the Specifications and all cost of
delivery F.O.B. Neoprobe's manufacturing facility. Ethicon shall pay the
Transfer Prices set forth in Schedule 5.2 for delivery of the Products within
thirty (30) days from the date of invoice. The date of invoice shall not be
earlier than the date of shipment. Ethicon agrees to purchase the demonstration
units referenced in Notes 2 and 3 of Article II "Demonstration Units" of
Schedule 5.2 hereto within thirty (30) days after the units have been returned
to Neoprobe and refurbished to the reasonable satisfaction of Ethicon.
5.3 COST REDUCTION PROGRAMS. Neoprobe hereby agrees that it shall use
its best reasonable efforts to minimize the costs of manufacturing the Products
to the extent it may do so without compromising the quality and/or regulatory
status of the Products or compliance with the terms of this Agreement. Each
Party will reasonably cooperate with the other Party in the pursuit of cost
reduction programs in the manufacture of the Products. Each Party shall inform
the other party of cost reduction initiatives related to the manufacture of
Products within fourteen (14) days after cost reduction initiatives have begun.
The resulting savings will initially be allocated to the Party that has incurred
documented costs until such costs have been recovered. Thereafter, *** of the
savings shall be allocated to the Party which has initiated and funded the cost
reduction program.
5.4 DEMONSTRATION UNIT PRICING. During the term of this Agreement or any
extension thereof, the Transfer Price for Products and fully functional
demonstration units shall be as listed in Schedule 5.2.
5.5 RISK OF LOSS. Neoprobe shall ship Products, at Ethicon's cost, to
any location chosen by Ethicon utilizing carriers chosen by Ethicon. The risk of
loss with respect to the Products shall remain with Neoprobe until the Product
is loaded aboard the common carrier at Neoprobe's manufacturing facility for a
Product, or other location mutually agreed upon by both Parties. Neoprobe will
pack the Product in a manner suitable for shipment to enable the Product to
withstand the effects of reasonable shipping conditions, including handling
during loading and unloading.
5.6 LABELING AND SALES LITERATURE. As of the Effective Date, Neoprobe
has on hand, the labeling, inserts, sales literature or customer instructions
for Products in the quantities and at the respective costs listed on Schedule
5.6. Existing inventories of all labeling, inserts, sales literature, or
customer instructions for all Neoprobe Products shall be provided ***.
Additional inventories will be provided ***. Master art work for all labeling,
inserts, sales literature or customers instructions shall be made available to
Ethicon should additional quantities be produced by Ethicon or should changes be
desired by Ethicon. Neoprobe will provide to Ethicon documented evidence of
Neoprobe's internal copy clearance review and approval; *** for all labeling,
inserts, sales literature or customer instructions prior to production of such.
5.7 TRANSFER PRICE AND FORECASTS FOR NEW PRODUCTS. Before a New Product
the research and development of which is not funded by Ethicon ("Unfunded New
Product") may be added to Schedule 2.15 and become a Product subject to the
terms of this Agreement, the Parties must agree to a Provisional Transfer Price
(as defined in Schedule 5.2) and to a forecast of Ethicon's expected purchases
of such Unfunded New Product including a schedule of desired delivery dates for
the following six (6) months, the first three (3) months of this
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 6
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
forecast shall constitute a binding purchase order. Neoprobe shall be under no
obligation to deliver and Ethicon shall be under no obligation to accept any
Unfunded New Products until a Provisional Transfer Price and forecast is
established for such New Product. If the Parties cannot agree upon a Provisional
Transfer Price and forecast within ninety (90) days, Neoprobe shall be free to
market and distribute the Unfunded New Product (a "Proposed Transaction")
subject to a right of first refusal of Ethicon. Pursuant to Ethicon's right of
first refusal, Neoprobe shall not consummate or agree to consummate a Proposed
Transaction with any party without first giving prompt notice thereof to Ethicon
in writing (the "Notice") specifying the pricing, terms, conditions and other
material provisions of such Proposed Transaction. In the event that Ethicon
elects to consummate a transaction upon the same pricing, terms, conditions and
other material provisions as specified in the Notice, Ethicon shall have thirty
(30) days to so notify Neoprobe and Neoprobe shall use all reasonable commercial
efforts to facilitate the consummation of such a proposed transaction with
Ethicon or its Affiliate within ninety (90) days following the receipt of such
notification. In the event that Ethicon fails to elect to exercise this right of
first refusal within the above mentioned thirty (30) day period, Neoprobe may
enter into an agreement with the party identified in the Notice with respect to
the Proposed Transaction on terms that are not less favorable to Neoprobe than
the terms specified by Neoprobe in the Notice; PROVIDED, HOWEVER, that in the
event that (a) Neoprobe and the third party identified in the Notice are unable
to consummate such an agreement within sixty (60) days or (b) the pricing,
terms, conditions and other material provisions of the Proposed Transaction are
modified to be materially less favorable to Neoprobe than were specified in the
Notice, then Neoprobe shall be required pursuant to this Section 5.7 to give
anew the requisite notice to Ethicon and comply with the right of first refusal
set forth herein for an additional thirty (30) business day period following the
receipt of such new notice.
5.8 MINIMUM PURCHASE REQUIREMENTS.
(a) During each of the first three (3) Commercial Years, Ethicon shall
purchase from Neoprobe the following ***:
Commercial Year Minimum Purchase Requirement
--------------- ----------------------------
*** ***
*** ***
*** ***
As used in this Section 5.8, a ***.
(b) The MPR for a Product set forth in Section 5.8(a) is a "take or
pay" obligation. In the event Ethicon does not meet its MPR for a Commercial
Year as required by Section 5.8(a), Neoprobe shall notify Ethicon of the
deficiency and Ethicon shall have forty-five (45) days to either place a
purchase order for the neo2000 Systems and/or Products consisting of a Control
Unit and Probe to make up the difference between actual purchases and the MPR or
pay Neoprobe an amount equal to the Gross Profit on the amount of purchases
necessary to satisfy such MPR.
5.9 ETHICON OBLIGATION TO COMMERCIALLY EXPLOIT. Neoprobe shall consider
the MPRs of Section 5.8 above as complete satisfaction of any duty, whether
express or implied, which could be imposed upon Ethicon to commercially exploit
its rights under this Agreement, and is accepted by Neoprobe in lieu of any best
efforts obligation on the part of Ethicon.
5.10 REDUCTION OF MINIMUM PURCHASE REQUIREMENTS. The MPRs set forth
under Section 5.8(a) above shall for any applicable Commercial Year be reduced
in the following circumstances:
a) If Neoprobe fails for any reason other than a Major Forces
event under Section 17.6 below to deliver the Products to Ethicon in accordance
with the terms of this Agreement, or replace Products which are defective under
Section 11.1 below, then the MPRs shall be reduced by *** of Products not
delivered or replaced.
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 7
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
b) If any Products is voluntarily or involuntarily recalled from
the market or withdrawn from sale because of a lack of governmental approvals or
for reason of safety, efficacy or quality, or if a Major Forces event under
Section 17.6 occurs, then the MPRs for the Products shall be waived until a
period of *** shall have elapsed after either market re-entry or the Major
Forces event is removed, whichever is applicable, and shall then be
proportionately reduced.
c) If this Agreement is terminated pursuant to Articles 12 or 14
below during any applicable Commercial Year, then the MPRs for all Products
shall be proportionately reduced for such Commercial Year, and Ethicon shall
***.
5.11 FORECASTS. Within thirty (30) days of the Effective Date, Ethicon
shall provide Neoprobe with a forecast of its expected purchases of the
Products, including a schedule of desired delivery dates, for the *** of this
forecast shall constitute a binding purchase order. Thereafter, Ethicon shall
(a) update the forecasts monthly so that its expected purchases and schedule of
desired delivery dates are continually forecast *** of such rolling forecasts
constituting a binding purchase order and (b) provide a report of actual monthly
Product sales.
5.12 ADJUSTMENT OF FORECASTS. Ethicon may adjust the total number of
Products to be delivered pursuant to Section 5.11 above upon sixty (60) days
written notice, provided however, that any such adjustment shall not serve to
reduce Ethicon's obligation to purchase the total number of Product indicated in
the binding purchase order. In any given month, if Ethicon wants Neoprobe to
deliver more than *** of the total number of the Products indicated in the
binding purchase order, then Neoprobe shall not be obligated to supply the
excess above ***, but Neoprobe shall nevertheless use its best reasonable
efforts to deliver to Ethicon any such excess above *** on a priority basis.
5.13 DELIVERY. Neoprobe shall deliver the Products to Ethicon in
accordance with the schedule of delivery dates specified in the binding purchase
orders set forth in Section 5.11 above.
5.14 PROVISION OF INFORMATION. No later than seven (7) days after the
execution of the Agreement and provided that Neoprobe has such information in
its possession or has a legal or contractual right to access to such
information, Neoprobe agrees to provide Ethicon with documentation setting forth
a complete list of all current Neoprobe customers and potential customer leads
(including, but not limited to, outstanding leads and quotations from terminated
distributors). Included in this documentation will be customer names, location,
Products purchased, date of Product purchase, Product service history, and
specific contact information in the case of customer leads.
5.15 PRODUCT CHANGES. *** shall not change the form, fit, function,
components or materials of any of the Products (or any change or modification to
the Specifications), the process by which the Products are manufactured or the
Raw Materials, *** . *** notice of all other changes at least fourteen (14) days
prior to making any such changes. If the Parties agree on any such change,
improvement or modification, they shall modify the Specifications to reflect the
same. *** shall have the right to review and amend any qualification protocol(s)
initiated by *** prior to the execution of such protocol(s), and shall have the
right to review and agree upon the subsequent results of the protocol prior to
releasing change into production. In the event of any change, *** may jointly
establish an appropriate qualification protocol, and *** shall determine an
appropriate inventory level for the pre-change Product in order to cover
on-going requirements during the qualification process.
5.16 PURCHASE OF *** . *** up to a maximum unit quantity of ***
respectively, PROVIDED THAT, ***. The agreed upon cost to *** or less. In the
event the *** are sold to *** customers, *** agrees *** the appropriate gross
margin on the sale of these Units in accordance with the agreed upon Transfer
Prices outlined for *** as referenced in Schedule 5.2, PROVIDED THAT, any ***
sold will be *** against the MPRs for that Calendar Year accordingly.
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 8
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
5.17 SALES OF PRODUCT. All *** distributed under this Agreement, shall
be within the sole discretion of ***.
5.18 NEOPROBE SALES AND MARKETING ***. Neoprobe shall *** for Neoprobe's
sales and marketing organization (the "Sales and Marketing Organization") which
include, but is not limited to, Neoprobe employees and programs, consulting
agreements, etc. as referenced heretofore in Schedule 5.18 for *** from the
Effective Date. *** at its sole discretion, may continue the *** of these Sales
and Marketing Organization activities.
5.19 TRAINING ASSISTANCE. Neoprobe shall provide Ethicon with all
information in its possession reasonably necessary or appropriate to enable
Ethicon to market the Products, and Neoprobe agrees further to consult with and
advise Ethicon in such matters, including without limitation, the preparation of
promotional, advertising and sales materials and presentations. Provided that it
has the personnel on staff and subject to the availability of the Sales and
Marketing Organization, Neoprobe shall provide reasonable sales training to
Ethicon and its Affiliates at reasonable locations selected by Ethicon (travel
expenses to be paid by Ethicon) and consented to by Neoprobe, such consent not
to be unreasonably withheld. Thereafter Neoprobe will provide similar sales
training from time to time in connection with any Products that become available
at times and locations reasonably selected by Ethicon and consented to by
Neoprobe, such consent not to be unreasonably withheld.
5.20 *** PROGRAM. The Parties agree to develop and negotiate the terms
for an *** and to implement such *** within *** after the Parties complete their
marketing and customer assessments. The revenues for such program will be shared
according to the gross revenues, less the selling ***, as agreed to for Transfer
Pricing of Products in Schedule 5.2.
5.21 *** Expenses. Ethicon will fund the costs related to the ***
pursuant to Section 11.1 and the *** Program only with respect to Products sold
by *** to its customers but not to the third party distributors listed on
Schedule 3.2 up to a limit of *** of Products of the immediately preceding
Commercial Year sold by *** but not to the ***. Net sales shall mean the revenue
received by *** from the sale of the Products to an independent third party less
the following amounts: (i) discounts, including cash discounts, or rebates
actually allowed or granted; (ii) credits or allowances actually granted upon
claims or returns, regardless of the party requesting the return; (iii) freight
charges paid for customer delivery; and (iv) taxes or other governmental charges
levied on or measured by the invoiced amount whether absorbed by the billing or
billed party.
5.22 DISPOSITION OF DEFECTIVE PRODUCT. Without prejudice to any other
remedy which Ethicon may have, Neoprobe shall replace at its own cost and
expense, including reimbursement of freight and disposition costs incurred by
Ethicon, Products that fail to comply with the Specifications or other
warranties made in Article 11. Ethicon shall notify Neoprobe of the existence
and nature of any non-compliance or defect which comes to its attention and
Neoprobe shall have a reasonable opportunity, ***, to inspect such defective
Product and provide Ethicon with detailed written instructions to return or
dispose of such defective Product. Ethicon shall ***. If Neoprobe fails to so
inspect and instruct Ethicon as to the disposition of such defective Product,
Ethicon may dispose of such defective Product as it sees fit and Neoprobe shall
promptly (i) reimburse Ethicon for all direct, out-of-pocket costs incurred by
Ethicon in respect of such disposition, and (ii) replace such defective Product
at its own cost and expense.
5.23 INDEPENDENT TESTING. If, after Neoprobe's inspections of any
Product, the parties disagree as to whether such Product conforms to the
Specifications and other warranties made in Article 11 or whether the Product
has such a defect, either party may deliver the item to an independent
third-party laboratory, mutually and reasonably acceptable to both parties, for
analytical testing to confirm such item's conformance to the Specifications and
other warranties made in Article 11 or the presence or absence of defects. All
costs associated with such third-party testing shall be at Ethicon's expense
unless the tested item is deemed by such third-party to be defective or not in
compliance with the Specifications and other warranties made in Article 11, in
which
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 9
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
case all such costs, including reimbursement of freight and disposition costs,
shall be promptly paid by Neoprobe. No inspection or testing of or payment for
Product by Ethicon or any third-party agent of Ethicon shall constitute
acceptance by Ethicon thereof, nor shall any such inspection or testing be in
lieu or substitution of any obligation of Neoprobe for testing, inspection and
quality control as provided in the Specifications and other warranties made in
Article 11 or under applicable local, state, or federal laws, rules,
regulations, standards, codes or statutes.
5.24 TRANSFER PRICE REPORTING.
(a) Ethicon shall, within ninety (90) days from the end of December 31 of
each calendar year during the term of this Agreement, deliver to Neoprobe a
report of the actual Transfer Price for the Initial Period (as defined in
Schedule 5.2) or the preceding Commercial Year, including a schedule calculating
the actual Transfer Price. Ethicon shall keep for a period *** after the date of
entry, accurate books and records reasonably necessary to verify the accuracy of
the information used to establish the actual Transfer Price as described in
Schedule 5.2.
(b) Neoprobe shall have the right after thirty (30) days advance written
notice to Ethicon, to appoint an independent certified accountant at its own
expense, acceptable and approved by Ethicon (which approval shall not be
unreasonably withheld) who shall have access to Ethicon's records during
reasonable business hours for the sole purpose of verifying the accuracy of the
calculation of the Transfer Prices for the Products for a period not more than
the previous four (4) calendar quarters, but this right may not be exercised
more than once in any calendar year. Ethicon shall be entitled to withhold
approval of an accountant which Neoprobe nominates unless the accountant duly
executes a confidentiality agreement with Ethicon which shall obligate such
accountant to keep the information it receives from Ethicon in confidence.
(c) Unless otherwise agreed to by the Parties, if as a result of the
audit performed pursuant to Section 5.24(b), the independent certified
accountant determines that Ethicon has under-reported any information (e.g., the
information used to calculate Net Selling Price) used to calculate the Transfer
Price for a Product and as a result Neoprobe has received less than it should
have under the Agreement, Ethicon shall, no later than forty-five (45) business
days after receiving notice of such underpayment, remit to Neoprobe the amount
of the underpayment. If as a result of the audit performed pursuant to Section
5.24(b), the independent certified accountant determines that Ethicon has
over-reported any information (e.g., the information used to calculate Net
Selling Price) used to calculate the Transfer Price for a Product and as a
result Neoprobe has received more than it should have under the Agreement,
Neoprobe shall, no later than forty-five (45) business days after receiving
notice of such overpayment, remit to Ethicon the amount of the overpayment less
the reasonable fees of the independent certified accountant, but in no case
shall Ethicon be required to remit any amount to Neoprobe if the fees of the
independent certified accountant exceed the amount of the Ethicon overpayment.
(d) If as a result of an audit performed pursuant to Section 5.24(b), it
is determined by the independent certified accountant that Ethicon has underpaid
any payment due to Neoprobe by more than ***, in addition to remitting the
amount of the underpayment as described in Section 5.24(c), Ethicon shall pay
Neoprobe interest on such amount at the rate per annum of "prime" (interest
changing as and when the "prime" changes); such interest being payable on
demand. 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.
(e) In the event the audit conducted pursuant to Section 5.24(b) reveals
an inaccuracy in the information reported to Neoprobe which results in an
underpayment by Ethicon and if Ethicon disagrees with the results of such audit
and further in the event the parties can not resolve such disagreement, the
Parties shall mutually choose 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 5.24(e) shall be
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 10
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
borne by Neoprobe if the independent accountant finds no underpayment and by
Ethicon if an underpayment is found.
5.25 ***.
5.26 ***.
*** agrees to use its best efforts to provide ***.
*** shall use its best efforts to provide ***.
*** at its sole expense, shall use its best efforts to develop and
release an ***.
*** agrees to review all designs *** in accordance to Section 5.15.
5.27 Should Ethicon develop and sell an instrument or device (a
"Competing Ethicon Product") which is a direct clinical replacement of a
Product, Ethicon shall agree to provide Neoprobe financial consideration of ***
of Net Sales of the Competing Ethicon Product during the term of this Agreement.
ARTICLE 6 - PRODUCT IMPROVEMENTS AND RESEARCH AND DEVELOPMENT
-------------------------------------------------------------
6.1 RESEARCH & DEVELOPMENT PAYMENTS. Ethicon agrees to fund at the end
of each calendar quarter during the first three (3) years of the Agreement, a
total of one hundred twenty-five thousand dollars ($125,000.00) per calendar
quarter for *** listed on Schedule 6.1 hereto, PROVIDED THAT, (a) *** retains
the identified research and development personnel or persons in Ethicon's
reasonable judgment adequately skilled and trained personnel to fill the job
positions listed on Schedule 6.1 ("R&D Personnel") for the entire calendar
quarter; (b) the R&D Personnel are *** continued Product support and (c) the R&D
Personnel are available to ***. The one hundred twenty-five thousand dollars
($125,000.00) per calendar quarter as stated above shall be prorated in the
event that less than *** individuals are available. The four hundred thousand
dollars ($400,000.00) paid in consideration for the Standstill and Rights
Agreement shall be credited against the research and development payments with
any excess promptly returned to Ethicon within ten (10) days if no further
research and development payments are to be made pursuant to this Section 6.1. A
*** for the R&D Personnel shall be provided to Ethicon prior to the Effective
Date.
6.2 IMPROVED PRODUCT AND *** NEW PRODUCTS. With respect to Improved
Products and New Products the research and development ***, once the Parties
agree to a Provisional Transfer Price and to a forecast of *** of the Improved
Product or *** including a schedule of desired delivery dates for the following
six (6) months, the first three (3) months of this forecast shall constitute a
binding purchase order for such Improved Product ***, such Improved Product ***
shall be added to the Agreement and shall become a Product within the meaning of
Section 2.15.
6.3 EXISTING *** R&D PROGRAMS. Within *** days after the Effective Date,
*** agrees to review existing *** research and development programs as described
in Schedule 6.3 (the "R&D Programs") and in its sole discretion, agree to fund
any or none of the R&D Programs in addition to the research and development
payments made pursuant to Section 6.1. *** shall have sixty (60) days to make
its determination and to inform *** of the result. The Parties agree to
negotiate in good faith within *** days from the Effective Date an agreement
setting forth: (i) development work plan(s) for the R&D Programs (ii) the
transfer pricing for such any products resulting from the funded R&D Programs
and (iii) ownership of intellectual property developed under such programs. In
no event shall the *** products developed under such R&D programs *** set forth
in Schedule
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 11
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
5.2.
6.4 ETHICON IDENTIFIED RESEARCH PROGRAMS. Ethicon may request that
Neoprobe conduct certain R&D activities on behalf of Ethicon ("Ethicon
Identified R&D"). In the event that Ethicon requests that Neoprobe conduct such
Ethicon Identified R&D, Ethicon and Neoprobe shall, in good faith, negotiate an
agreement setting forth: a) responsibility for costs associated with such
Ethicon Identified R&D; b) ownership of designs, prototypes, or intellectual
property; and (c) royalties, if any, payable to Neoprobe on instruments
developed under such Ethicon Identified R&D and sold by Ethicon.
6.5 REPORTS. Upon Ethicon's written request, but no more than once per
month, Neoprobe shall promptly provide Ethicon written research and development
progress reports and activity reports relating to Products and Improved Products
that are identified in the Specifications or Schedule 6.3.
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES
------------------------------------------
7.1 EXECUTION AND PERFORMANCE OF AGREEMENT. Neoprobe and Ethicon each
represents and warrants to the other that it has full right, power and authority
to enter into and perform its respective obligations under this Agreement.
Neoprobe and Ethicon each further represents and warrants to the other that the
performance of its obligations under this Agreement will not result in a
violation or breach of, and will not conflict with or constitute a default under
any agreement, contract, commitment or obligation to which such Party or any of
its Affiliates is a party or by which it is bound or infringe upon the rights of
any third party and that it has not granted and will not grant during the term
of this Agreement or any renewal thereof, any conflicting rights, license,
consent or privilege with respect to the rights granted herein.
7.2 INTELLECTUAL PROPERTY. Neoprobe represents and warrants to Ethicon
that (a) Neoprobe owns all of the rights, title and interest in and to the
Patents, Neoprobe Trademarks, Know-How and all other intellectual property that
appear on or are otherwise used in connection with the Products; (b) no academic
institution, member of an academic institution, corporation or other entity, or
any local, state or federal government holds any property rights through it in
any Product; (c) Neoprobe is able to consummate this Agreement in the capacity
of a free agent; (d) the manufacture, use and sale of the Products in accordance
with the terms of this Agreement does not present any issue of infringement of
Neoprobe's or any third party's rights under any issued patent or license; (e)
it has no outstanding encumbrances or agreements, whether written, oral or
implied, which would be inconsistent with the licenses granted herein; (f) the
use of the Neoprobe Trademarks by Ethicon hereunder does not and will not
infringe the rights of any third party; and (g) Neoprobe is presently aware of
no infringement or dispute by any third party of any Neoprobe Patent or any
Neoprobe Trademark.
7.3 YEAR 2000 COMPLIANCE. Neoprobe hereby represents and warrants to
Ethicon that:
(a) it is able to demonstrate Year 2000 Compliance in full production
versions of the Products and all of its services related to its performance
hereunder, with accompanying documentation;
(b) Neoprobe's information systems and other business systems for
estimates, performance schedules, orders, confirmations, manufacture and
delivery, invoicing, crediting of payments and other business operations are
able to accept and properly process input for dates before, on or after January
1, 2000; and
(c) Neoprobe is now planning and taking action to implement and will
continue to implement, in a commercially reasonable manner, any and all measures
to continue to perform its obligations under this Agreement with respect to Year
2000 Compliance strictly according to its terms and otherwise to meet the needs
of its relationship with Ethicon;
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 12
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
(d) Neoprobe will promptly provide to Ethicon, in response to Ethicon's
periodic requests for updates, information concerning its Year 2000 Compliance
program to the extent it affects performance of this Agreement and might impair
its performance hereunder.
7.4 Neoprobe expressly represents and warrants that a) it owns all of
the right, title and interest in and to the Products listed on Schedule 2.15 as
of the Effective Date; b) it is empowered to supply the Products to Ethicon; c)
it has no outstanding encumbrances or agreements, contracts, understandings or
arrangements of any kind pursuant to which any entity may purchase from
Neoprobe, or has the right to sell or market, the Product or any component of
such Product except for the Third Party Agreements; e) it is empowered to grant
Ethicon licenses of the scope set forth in Articles 12, 13 and 14 below and f)
it has the financial capacity to supply the Product to Ethicon in view of the
terms and conditions set forth in this Agreement.
ARTICLE 8 - REGULATORY COMPLIANCE AND QUALITY ASSURANCE
-------------------------------------------------------
8.1 INSPECTIONS. Ethicon shall have the right, upon reasonable notice
to Neoprobe and during regular business hours, to inspect and audit
manufacturing processes and procedures, quality assurance/control processes and
procedures, inventory, work-in-process, Quality System Regulations ("QSRs")
records in the countries where any Product is marketed, Raw Materials and the
facilities being used by Neoprobe (or any third party) for production and
storage of Products to assure compliance by Neoprobe (and its suppliers) with
(a) all applicable statutes, laws and regulatory requirements and standards,
including, without limitation, QSRs enforced by the United States Food and Drug
Administration (the "FDA"), (b) Ethicon Endo-Surgery, Inc. Quality Assurance
Requirements, (c) the terms and provisions of this Agreement. To the extent it
has the right to do so, Neoprobe agrees to give Ethicon access during normal
working hours to such records as are reasonably necessary to enable Ethicon to
conduct its audit, including quality control records, test records, Device
History Record and Device Master Records. Ethicon's right of access to Neoprobe
(or its agent's) Confidential Information shall be restricted to those matters
necessary to verify the compliance of Neoprobe (or its agents) with (a) all
applicable statutes, laws and regulatory requirements and standards, including,
without limitation, QSRs enforced by the FDA, (b) Ethicon Endo-Surgery, Inc.
Quality Assurance Requirements, (c) the terms and provisions of this Agreement.
Ethicon personnel exercising this right of inspection shall comply with
applicable rules and regulations in place at the manufacturing facility when
such personnel or representatives are made aware of such rules and regulations.
8.2 RESULTS OF ETHICON'S AUDIT. Ethicon shall promptly (no more than
*** after conclusion of any audit conducted pursuant to Section 8.1) share the
results of the audit with Neoprobe. If Ethicon believes that a deficiency
exists, it shall inform Neoprobe and Neoprobe shall within *** remedy or cause
the remedy of any deficiencies that were noted in such audit, or if any such
deficiency can not reasonably be remedied ***, present to Ethicon a written plan
to remedy such deficiencies as soon as possible. Failure by Neoprobe to remedy
or cause the remedy of a deficiency in the agreed upon time period shall be
deemed a material breach of this Agreement; provided however, that if in
Neoprobe's reasonable judgement it disagrees with Ethicon's conclusion that a
deficiency exists and if the Parties continue to disagree after reasonable
discussion, Neoprobe shall have the right to have an independent regulatory
expert conduct the same audit as Ethicon. If the independent expert agrees with
Neoprobe that no deficiency exists, Ethicon shall bear the cost of such audit.
If the independent expert agrees with Ethicon's assessment, Neoprobe shall bear
the cost of the independent expert and shall correct all deficiencies as
provided in this Section 8.2. Neoprobe acknowledges that the provisions of this
Article Eight granting Ethicon certain audit rights shall in no way relieve
Neoprobe of any of its obligations under this Agreement, nor shall such
provisions require Ethicon to conduct any such audits.
8.3 510(k) CLEARANCE. Neoprobe represents and warrants that it has
obtained 510(k) to the extent
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 13
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
it is required to do so clearance from the FDA to manufacture and sell the
Products; and that the submissions which Neoprobe made to the FDA were made in
good faith and contained accurate and complete data and information regarding
the Product as required by applicable laws, rules and regulations. Neoprobe
shall maintain for the term of this Agreement or any extension thereof all
510(k) clearances for the Products. Furthermore, Neoprobe shall file, and
maintain at its own cost for the Products listed on Schedule 2.15 as of the
Effective Date, all appropriate registrations with the FDA and similar
regulatory authorities in the United States and in foreign countries which have
the authority to approve the sale of the Product for use in humans. Neoprobe
shall review all Product changes agreed to pursuant to Section 5.15 for
regulatory impact in the United States and other countries where any Product is
marketed, and shall provide Ethicon with copies of all regulatory impact review
documentation.
8.4 REGULATORY COMPLIANCE. Neoprobe represents and warrants that all
Products sold or delivered to Ethicon during the term of this Agreement or any
extension thereof shall be manufactured and delivered in accordance with
Regulatory Compliance, and that continually during the term of this Agreement or
any extension thereof no Products delivered by Neoprobe to Ethicon will be
adulterated or misbranded at the time of delivery within the meaning of the
Federal Food, Drug and Cosmetic Act. Neoprobe shall notify Ethicon in accordance
with Section 8.8 below after receiving notice of any claim or action by the FDA
relating to non-compliance with this Article or any notice with respect to any
violation of any applicable laws, rules or regulations. In addition, Neoprobe
shall notify Ethicon of any adverse reaction, malfunction, injury or other
similar claims with respect to the Products of which it becomes aware in
accordance with Section 8.8 below.
8.5 REGULATORY INSPECTIONS. Neoprobe shall notify Ethicon of any FDA
inspection, or any inspection from any other regulatory body, of the facilities
for the manufacture of the Products, or any request for information from the FDA
or other regulatory body related to the manufacture of the Products, as soon as
practically possible after Neoprobe becomes aware of such inspection or such
request.
8.6 RECALLS. Upon mutual consent of the Parties, which consent may not
be unreasonably withheld, or in the case of a recall required by an agency with
competent jurisdiction, Neoprobe shall be required to institute and fund any
recall, field corrective action, or the like in circumstances relating to a
breach by Neoprobe of the warranty set forth in Article 11 below or other breach
of its representations, warranties, guarantees, covenants or other obligations
hereunder. In such circumstances, the actual retrieval of the Products and costs
associated with that retrieval shall be undertaken and absorbed by Neoprobe. The
Parties shall maintain adequate records concerning traceability of the Products,
and shall cooperate with each other in the event that any procedures described
in this paragraph are undertaken. In the event of any such recall, Neoprobe
shall accept recalled Products and deliver to Ethicon replacement Products at
Neoprobe's sole cost and expense.
8.7 COOPERATION. Because regulatory requirements vary throughout the
world, the Parties agree to cooperate with one another to obtain regulatory
approvals.
8.8 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. Each Party
shall notify the other within ten (10) business days of any other adverse
experiences related to a Product of which it becomes aware. Neoprobe shall be
responsible for all reporting to the FDA and all other regulatory bodies where
any Product is marketed. Neoprobe shall provide Ethicon with a copy of the
quarterly adverse experience reports for the Products, or any other reportable
events, which Neoprobe is required by the Act to submit to the FDA or any other
regulatory requirements in countries where any Product is marketed, within three
(3) business days of its submission. Each Party shall notify the other of any
serious complaints relating to the Products which it receives within thirty (30)
days of becoming aware of such complaint.
8.9 CORRECTIVE ACTION. In the event any governmental agency having
jurisdiction shall request or order, or if Ethicon shall determine to undertake,
any corrective action with respect to any Product, including any recall,
corrective action or market action, and the cause or basis of such recall or
action is attributable to a breach
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 14
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
by Neoprobe of any of its warranties, guarantees, representations, obligations
or covenants contained herein, then Neoprobe shall be liable, and shall
reimburse Ethicon for the reasonable costs of such action including the cost of
any Product which is so recalled whether or not any such specific unit of
Product shall be established to be in breach of any warranty by Neoprobe
hereunder.
8.10 PROVISION OF INFORMATION. Upon Ethicon's request, Neoprobe shall
provide Ethicon with access to the following information at no cost to Ethicon:
a) necessary data, descriptions, processes, photographs and
statements of claims for safety, efficacy or performance;
b) technical data to allow Ethicon to prepare up-to-date
customer instruction for the Products;
c) the Device Master Records for the Products and the Device
History Records for the Products, as defined in 21 Code of Federal Regulations
Section 800, for the Products and components thereof; and
d) copies of all U.S. and foreign regulatory submissions,
including the 510(k) submission, for the Products.
8.11 PROVISION OF SUPPORT. Neoprobe shall provide Ethicon with the
following support at no cost to Ethicon:
a) claim support for any claims, indications, or other
representations included in any labeling, inserts, sales literature or customer
instruction prepared by Neoprobe relating to the Products (it is understood and
agreed that in the event Ethicon reasonably disagrees with any such claims,
indications, or other representations, Neoprobe shall modify the same in the
manner agreeable to both Parties; and
b) prompt review and approval, as appropriate, of all training
materials and sales and promotional literature developed by Ethicon relating to
the Products (it being understood and agreed that no such review shall relieve
Neoprobe of responsibility for the accuracy of such materials).
c) Neoprobe agrees to promptly obtain and maintain CE marking
for all Products, PROVIDED HOWEVER, it is the obligation of Ethicon, at its
expense, to obtain other regulatory approvals necessary for distributors to
market the Products in a specific country. Neoprobe agrees to support Ethicon in
obtaining such regulatory approvals, including but not limited to, by providing
any necessary documentation within Neoprobe's control.
8.12 LABELING AND SALES LITERATURE. Neoprobe shall be responsible for
the appearance, text and regulatory compliance of all Neoprobe originated
package labeling used in connection with the Products. Any labeling, inserts,
sales literature, or customer instruction prepared by Ethicon relating to the
Product is subject to written approval by Neoprobe, which approval shall not be
unreasonably withheld (it being understood and agreed that no such review shall
relieve Neoprobe of responsibility for the accuracy of such materials).
ARTICLE 9 - INDEMNIFICATION
---------------------------
9.1 INDEMNIFICATION BY NEOPROBE. Neoprobe shall indemnify and hold
harmless Ethicon and its Affiliates and their respective officers, directors and
employees from and against any and all damages, liabilities, claims, costs,
charges, judgments and expenses (including interest, penalties and reasonable
attorneys' fees) (collectively "Damages") incurred by such party that (i) arise
as the result of Neoprobe's breach of this Agreement or of any obligation,
covenant, warranty or representation made to Ethicon under this Agreement; or,
(ii) which result from any claim made against Ethicon 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 Ethicon's use of
promotional materials, provided by Neoprobe, so long as Ethicon's use is in
accordance with the Agreement; or (v) which result from any claim of patent or
trademark infringement made against Ethicon by a third party which arises as a
consequence of Ethicon's promotion of the Product.
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 15
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
9.2 NEOPROBE INSURANCE. Neoprobe shall obtain and maintain in full force
and effect valid and collectible product liability insurance in respect of the
Products for death, illness, bodily injury and property damage in an amount not
less than *** per occurrence. Such policy shall name Ethicon as an insured or an
additional insured thereunder and Neoprobe shall grant like coverage to Ethicon
under a standard broad form vendor's endorsement thereto. Neoprobe shall within
ten (10) days of the Effective Date provide Ethicon with evidence of this
coverage, provided that the existence of such coverage shall in no way limit
Neoprobe's liability or obligations hereunder. Such insurance policy shall
provide that in the event such insurance coverage should be materially adversely
changed or terminated for any reason, the insurer thereunder will give Neoprobe
and Ethicon ten (10) days prior notice of such change or termination.
9.3 INDEMNIFICATION BY ETHICON. Ethicon shall indemnify and hold
harmless Neoprobe and its Affiliates and their respective officers, directors
and employees from and against any and all Damages incurred by such party which:
(i) arise out of Ethicon's breach of this Agreement or of any obligation,
covenant, warranty or representation made to Neoprobe under this Agreement; or,
(ii) result from the negligent acts or willful malfeasance on the part of
Ethicon or its employees or agents, in promoting the Product in a manner
inconsistent with the Product's labeling.
9.4 CLAIMS. a) A Party (hereinafter referred to as the "Indemnifying
Party") indemnifying another party or parties (hereinafter referred to as the
"Indemnified Party"), pursuant to this Agreement, shall indemnify and hold the
Indemnified Party harmless against any and all actions, suits, proceedings,
demands, claims, assessments, costs, judgments, legal and other expenses
incidental to any of the foregoing (hereinafter referred to as a "Claim"). In
the event a Claim is made upon the Indemnified Party, the Indemnified Party
shall promptly give notice of such Claim to the Indemnifying Party, and shall
promptly deliver to such Indemnifying Party all information and written material
available to the Indemnified Party relating to such Claim. If such Claim is
first made upon the Indemnifying Party, the Indemnifying Party shall promptly
give notice of such Claim to the Indemnified Party.
b) The Indemnified Party will, if notified of the Indemnifying
Party's election to do so within fifteen (15) days of the date of notice of a
Claim, permit the Indemnifying Party to defend in the name of the Indemnified
Party any Claim in any appropriate administrative or judicial proceedings and
take whatever actions may be reasonably requested of the Indemnified Party to
permit the Indemnifying Party to make such defense and obtain an adjudication of
such Claim on the merits, including the signing of pleadings and other
documents, if necessary; provided that the Indemnifying Party shall defend the
Claim with counsel reasonably satisfactory to the Indemnified Party and provide
the Indemnified Party with evidence reasonably satisfactory to the Indemnified
Party that the Indemnifying Party can satisfy the Claim if it is upheld. In
addition to the liability for the ultimate settlement or judgment, if any,
arising out of such Claim under this Agreement, the Indemnifying Party shall be
solely responsible for all the expenses incurred in connection
with such defense or proceedings, regardless of their outcome. However, the
Indemnifying Party shall not be responsible for any expenses, including
attorneys fees and costs, incurred by the Indemnified Party to monitor the
defense of the Claim by the Indemnifying Party.
c) In the event the Indemnifying Party does not accept the
defense of such Claim under the terms hereof, the Indemnified Party shall be
entitled to conduct such defense and settle or compromise such Claim, and the
Indemnifying Party's indemnification obligation under this Agreement shall be
absolute, regardless of the outcome of such Claim. The Indemnified Party, at its
option, may elect not to permit the Indemnifying Party to control the defense
against a Claim. If the Indemnified Party so elects, then the Indemnifying Party
shall not be obligated to indemnify the Indemnified Party against any
settlements, judgments or other costs or obligations arising thereunder which
the Indemnified Party may make or incur relating to such Claim.
ARTICLE 10 - COVENANTS
----------------------
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 16
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
10.1 During the term of this Agreement and any extension thereof,
Neoprobe shall not enter into any agreements, contracts, understandings or
arrangements with any person other than Ethicon relating to the distribution or
licensing of the Product or Improved Products during the term of this Agreement
or any extension thereof.
10.2 Within thirty (30) days from the Effective Date, Neoprobe shall
place with *** mutually agreed upon by Neoprobe and Ethicon and as described in
Schedule 10.2 hereto, ***.
ARTICLE 11 - WARRANTY
---------------------
11.1 WARRANTY. Neoprobe warrants during the warranty period set forth
under Section 11.2 below that all Products delivered to Ethicon under this
Agreement shall be manufactured in accordance and conformity with the
Specifications and in compliance with this Agreement, and that the Product so
delivered shall be of merchantable quality, free from defects in design,
construction, materials and workmanship. Neoprobe warrants that it shall comply
with all present and future statutes, laws, ordinances and regulations relating
to the manufacture, assembly and supply of the Product, including, without
limitation, those enforced by the FDA (including compliance with QSRs) and
International Standards Organization Rules 9,000 et seq. Ethicon shall be
entitled during the warranty period to return to Neoprobe for exchange or full
credit at Ethicon's original cost, including incurred freight and insurance
costs, any Products returned by a customer of Ethicon for defects in design,
construction, materials or workmanship. Any inspection by Ethicon shall not
relieve Neoprobe of its obligation to manufacture Products which meet the
Specifications and comply with good manufacturing practices.
11.2 WARRANTY PERIOD. The initial warranty period shall *** whichever is
later.
11.3 WARRANTY PASS-THROUGH. Neoprobe agrees that Ethicon may pass the
warranty given to Ethicon under this Section 11.1 above along to Ethicon's
customers.
11.4 ***. As part of Neoprobe's warranty obligation described in
Sections 11.1 and 11.2, Neoprobe agrees *** to ***. Neoprobe shall provide
Ethicon with a procedure for handling customer returns for servicing and
repairing Products covered under the warranty obligations described in Sections
11.1 and 11.2 within *** of the Effective Date.
11.5 REPLACEMENT PARTS. With respect to Products outside of the warranty
periods set forth in Section 11.2 above, Neoprobe shall provide repairs and
replacement parts, as appropriate, for devices manufactured by Neoprobe at
reasonable rates and prices mutually agreed upon in writing by both Parties.
ARTICLE 12 - FAILURE TO SUPPLY,CHANGE OF CONTROL OR INSOLVENCY EVENT
--------------------------------------------------------------------
12.1 If Neoprobe fails to supply *** of the Products meeting the
Specifications on a desired delivery date specified on a binding purchase order
under either of the following conditions:
(a) for any reason other than those set forth under Section 17.6
below, and this failure lasts longer than *** from such desired delivery date;
or
(b) for any reason set forth under Section 17.6 below, and this
failure lasts longer than *** from such desired delivery date;
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 17
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
then Ethicon shall thereafter have the right to *** terminate this Agreement
upon written notice to Neoprobe and to manufacture or have manufactured the
Product. Additionally, if a Change of Control occurs followed by a failure to
supply lasting longer than *** from the desired delivery date set forth in a
binding purchase order, or an Insolvency Event occurs, then *** upon written
notice to Neoprobe, Ethicon shall have the right to *** terminate this Agreement
upon written notice to Neoprobe
12.2 In the event that a Change of Control occurs and such controlling
or surviving entity is a competitor of Ethicon, then Ethicon shall have the
right to *** terminate this Agreement upon written notice to Neoprobe.
ARTICLE 13 - PATENTS, TRADEMARKS AND CONFIDENTIAL INFORMATION
-------------------------------------------------------------
13.1 LICENSE. Ethicon and its Affiliates shall have a fully paid-up
worldwide, exclusive license under the Patents to use, sell, offer for sale,
import or otherwise dispose of, Products for the term of this Agreement or any
extension thereof. Ethicon shall also have a secondary license (the "Secondary
License") which includes a worldwide, exclusive, paid-up license under all
Patents and Know-How necessary to make, have made, import, use or sell the
Products, Improved Products and Ethicon Funded New Products; a license under
Neoprobe's regulatory clearances, including Neoprobe's 510(k), to market the
Products, Improved Products and Ethicon Funded New Products and an exclusive,
irrevocable, sub-licensable, right to continue to use the Neoprobe Trademarks
pursuant to the restrictions set forth in Section 13.2. Ethicon's Secondary
License shall run for the term of this Agreement and any extension thereof,
assuming Ethicon had exercised all rights to extensions thereof. In the event
Ethicon exercises its rights under its Secondary License, to make, have made or
import the Products, Improved Products and/or Ethicon Funded New Products
Neoprobe shall make available to Ethicon all of the information then in
Neoprobe's possession or at its free disposal relating to the manufacture of the
Products, Improved Products and/or Ethicon Funded New Products. Ethicon hereby
agrees not to exercise its rights to make, have made, import, use or sell the
Products, Improved Products and Ethicon Funded New Products under its Secondary
License, except in the event of a failure to supply meeting the requirements of
Section 12.1 above or a termination of this Agreement by Ethicon pursuant to
Section 14.1, and any such exercise shall be a material breach of the terms of
this Agreement.
13.2 ***. Nothing herein shall be deemed to give one Party, either
during the term of this Agreement or thereafter, any right to trademarks or
copyrights of the other Party or to their use except that Ethicon shall have the
right to use Neoprobe's Trademarks in association with the marketing and sale of
the Products during the term of this Agreement, any extension thereof or as
provided by Section 13.1 if it chooses to do so *** to the Trademarks.
13.3 CONFIDENTIAL INFORMATION. All written information designated as
confidential and exchanged between Neoprobe and Ethicon while this Agreement is
in effect shall be treated as confidential information. Neither Party shall for
*** after the date of expiration or termination of this Agreement, use (other
than in the performance of its obligations hereunder) or disclose such
information to any third party without the prior written approval of the other
Party, unless such information has become public knowledge through no fault of
the Party receiving such information, or comes to such Party from a third party
under no obligation of confidentiality with respect to such information, or was
in the possession of such Party prior to the date of disclosure, or is developed
by or on behalf of such Party without reliance on confidential information
received hereunder, or is requested to be disclosed in compliance with
applicable laws or regulations in connection with the sale of the Product, or is
otherwise required to be disclosed in compliance with an order by a court or
other regulatory body having competent jurisdiction, or is product-related
information which is reasonably required to be disclosed in connection with
marketing the Products. The obligations imposed by this section shall not limit
any rights
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 18
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
provided to Ethicon pursuant to Section 12.1 above to manufacture or have
manufactured the Product following Neoprobe's failure to supply pursuant to this
Agreement; provided that the disclosure of confidential information to a third
party (except as may be reasonably required in preliminary discussions with such
third party) for the purpose of enabling such Party to manufacture the Products
shall be conditioned upon such third party signing a confidentiality agreement
prohibiting the disclosure of such information to any other party and limiting
the use of such information to the manufacturing of the Products.
ARTICLE 14 - TERMINATION
------------------------
14.1 This Agreement may be terminated by either Party in the event the
other materially fails to perform or otherwise materially breaches any of its
obligations under this Agreement (other than pursuant to Article 12) by giving
written notice of its intent to terminate and stating the grounds for
termination. The Party receiving the notice shall *** from the date of receipt
of the notice to cure the failure or breach. In the event it is cured, the
notice shall be of no effect. In the event it is not cured, this Agreement then
shall, without more, terminate at the end of such *** period. If the failure to
perform or other breach is due to circumstances covered under Section 17.6
below, then this subsection shall not apply until such circumstances have
ceased.
14.2 For purposes of Section 14.1 a breach by Neoprobe of its
obligations, covenants, representations or warranties under Section 3.2 and 3.3
shall be deemed to be a material failure to perform and a material breach of its
obligations under this Agreement. If Ethicon exercises its rights to terminate
this Agreement under Section 14.1, Neoprobe grants Ethicon an exclusive paid-up
worldwide license under the Patents to make, have made, use, sell, offer for
sale, import or otherwise dispose of, the Products, rights under Neoprobe's
regulatory clearances, including 510(k), to market the Products, and rights to
all Know-How necessary to make, have made, use, sell, offer for sale, import or
otherwise dispose of, the Products, such license and rights shall run for the
term of this Agreement and any extension thereof, assuming Ethicon had exercised
all rights to extensions thereof. Ethicon further shall have the exclusive right
to continue to use the Neoprobe Trademarks pursuant to the restrictions set
forth in Section 13.2. In the event Ethicon exercises its right to terminate
this Agreement under Section 14.1, Neoprobe shall make available to Ethicon all
of the information then in Neoprobe's possession or at its free disposal
relating to the manufacture of the Products.
14.3 Ethicon may terminate this Agreement upon *** written notice if
Ethicon discovers a patent of a third party which arguably covers in whole or in
part any aspect of the Product and the infringement is not cured within such ***
period in a manner which is satisfactory in Ethicon's sole discretion.
14.4 Following the effective date of termination of this Agreement,
Ethicon shall have the right and option to either (i) continue to sell Products
in the Territory on an exclusive worldwide basis for a period of ***, or (ii) on
written notice to Neoprobe, sell to Neoprobe and have Neoprobe buy, within ***
after request, all of the Products in the Ethicon's stock which were received by
Ethicon *** of less prior to the effective date of the effective date of
termination which are in good condition. Such Products shall be repurchased at
the most recent landed cost for such Products in effect hereunder prior to
termination of this Agreement, and will be shipped to the designation selected
by the Neoprobe, freight collect. Outdated, used or damaged Products shall
either be made available to Neoprobe for destruction by Neoprobe at their then
current location, or shipped to Neoprobe, freight collect, as determined by
Neoprobe.
14.5 Termination of this Agreement for any reason shall not affect
rights and obligations of the Parties accrued through the effective date of
termination, including without limitation indemnification provisions relating to
the Product manufactured or distributed during the term of this Agreement or any
extension thereof.
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 19
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
ARTICLE 15 - RESOLUTION OF DISPUTES
-----------------------------------
15.1 Any dispute, claim or controversy arising from or related in any
way to this agreement or the interpretation, application, breach, termination or
validity thereof, including any claim of inducement of this agreement by fraud
or otherwise, will be submitted for resolution to arbitration pursuant to the
commercial arbitration rules then pertaining of the CPR Institute for Dispute
Resolution, or successor ("CPR"), except where those rules conflict with these
provisions, in which case these provisions control.
The arbitration will be held in Cincinnati, Ohio.
15.2 The panel shall consist of three (3) arbitrators chosen from the
CPR Panels of Distinguished Neutrals (or, by agreement from another provider of
arbitrators) each of whom is a lawyer with at least fifteen (15) years
experience with a law firm or corporate law department of over twenty-five (25)
lawyers or was a judge of a court of general jurisdiction. In the event the
aggregate damages sought by the claimant are stated to be less than $5 million,
and the aggregate damages sought by the counterclaimant are stated to be less
than $5 million, and neither side seeks equitable relief, then a single
arbitrator shall be chosen, having the same qualifications and experience
specified above. Each arbitrator shall be neutral, independent, disinterested,
impartial and shall abide by The Code of Ethics for Arbitrators in Commercial
Disputes approved by the AAA. There shall be no EX PARTE communications with an
arbitrator either before or during the arbitration, relating to the dispute or
the issues involved in the dispute or the arbitrator's views on any such issues.
15.3 The Parties agree to cooperate (a) to obtain selection of the
arbitrator(s) within forty-five (45) days of initiation of the arbitration,
including jointly interviewing the final candidates, (b) to meet with the
arbitrator(s) within forty-five (45) days of selection and (c) to agree at that
meeting or before upon procedures for discovery and as to the conduct of the
hearing which will result in the hearing being concluded within no more than
nine (9) months after selection of the arbitrator(s) and in the award being
rendered within sixty (60) days of the conclusion of the hearings, or of any
post-hearing briefing, which briefing will be completed by both sides within
thirty (30) days after the conclusion of the hearings. In the event no such
agreement is reached, (a) the CPR will select arbitrator(s), allowing
appropriate strikes for reasons of conflict or other cause and three (3)
peremptory challenges for each side, and permitting the Parties, prior to
exercising their final peremptory challenge, jointly to interview each of the
top three (3) final candidates (for no more than one (1) hour each) if a single
arbitrator is being selected or the top five (5) finalists if a panel of three
(3) is being selected, (b) the arbitrator(s) shall set a date for the hearing in
accord with the above schedule, commit to the rendering of the award within
sixty (60) days of the conclusion of the evidence at the hearing, or of any
post-hearing briefing (which briefing will be completed by both sides in no more
than thirty (30) days after the conclusion of the hearings), and (c) the
arbitrator(s) shall provide for discovery according to these time limits, giving
recognition to the understanding of the Parties that they contemplate reasonable
discovery, including document demands and depositions, but that such discovery
be limited so that the time limits specified herein may be met without
difficulty. In no event will the arbitrator(s), absent agreement of the parties,
allow more than a total of ten (10) days for the hearing or permit either side
to obtain more than a total of forty (40) hours of deposition testimony from all
witnesses, including both fact and expert witnesses, or serve more than twenty
(20) individual requests for documents, including subparts, or twenty (20)
individual requests for admission or interrogatories, including subparts.
Multiple hearing days will be scheduled consecutively to the greatest extent
possible.
15.4 The arbitrator(s) must render their award by application of the
substantive law of the State of Ohio and are not free to apply "amiable
compositeur" or their own or another's view of "natural justice and equity." The
arbitrator(s) shall render an opinion setting forth findings of fact and
conclusions of law with the reasons therefor stated. A transcript of the
evidence adduced at the hearing shall be made and shall, upon request, be made
available to either party. The arbitrator(s) shall have power to exclude
evidence on grounds of hearsay, prejudice beyond its probative value,
redundancy, or irrelevance and no award shall be overturned
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 20
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
by reason of such ruling on evidence.
15.5 To the extent possible, the arbitration hearings and award will be
maintained in confidence.
15.6 The United States District Court for the Southern District of Ohio,
Western Division at Cincinnati, may enter judgment upon any award. In the event
the panel's award exceeds $5 million in monetary damages or includes or consists
of equitable relief, or rejects a claim in excess of that amount or for that
relief, then the court shall vacate, modify or correct any award (including
remanding to the arbitrators for further proceedings) where the arbitrators'
findings of fact are clearly erroneous, and/or where the arbitrators'
conclusions of law are erroneous; in other words, the court will undertake the
same review as if it were a federal appellate court reviewing a district court's
findings of fact and conclusions of law rendered after a bench trial. An award
for less than $5 million in damages and not including equitable relief or which
neither rejects a claim in excess of that amount or for that relief, may be
vacated, modified or corrected only pursuant to the Federal Arbitration Act. The
Parties consent to the jurisdiction of the above-specified Court for the
enforcement of these provisions, the review specified herein, and the entry of
judgment on any award. In the event such Court lacks jurisdiction, then any
court having jurisdiction of this matter may enter judgment upon any award and
provide the same relief, and undertake the same review, as specified herein.
15.7 In the event the expanded judicial review provided for under
Section 15.6 above is not available from the court as a matter of law, the party
unable to obtain such review may instead obtain review of the arbitrators' award
or decision by a single appellate arbitrator (the "Appeal Arbitrator") selected
from the CPR list of distinguished neutrals and pursuant to then current CPR
selection procedures. No Appeal Arbitrator shall be selected unless he or she
can commit to rendering a decision within forty-five (45) days following oral
argument as provided in this Section. Any such review must be initiated with the
CPR within thirty (30) days following the date the district court declines the
expanded review specified in Section 15.6 above. In the event timely review is
sought, the Appeal Arbitrator will make the same review of the arbitration
panel's ruling and its bases that the Court of Appeals of the federal circuit
where the arbitration hearings are held would make of findings of fact and
conclusions of law rendered by a district court after a bench trial and then
modify, vacate or affirm the arbitration panel's award or decision accordingly.
The Appeal Arbitrator will consider only the arbitration panel's findings of
fact and conclusions of law, pertinent portions of the hearing transcript and
evidentiary record as submitted by the parties, opening and reply briefs of the
party pursuing the review, and the answering brief of the opposing party, plus a
total of no more than four (4) hours of oral argument evenly divided between the
parties. The party seeking review must submit its opening brief and any reply
brief within seventy-five (75) and one hundred twenty (120) days, respectively,
following the date the court declines the expanded review specified in Section
15.6; whereas, the opposing Party must submit its responsive brief within one
hundred ten (110) days of that date. Oral argument shall take place within five
(5) months after the district court declines the expanded review specified in
Section 15.6, and the Appeal Arbitrator shall render a decision within
forty-five (45) days following oral argument.
15.8 Each party has the right before or, if the arbitrator(s) cannot
hear the matter within an acceptable period, during the arbitration to seek and
obtain from the appropriate court provisional remedies such as attachment,
preliminary injunction, replevin, etc. to avoid irreparable harm, maintain the
STATUS QUO, or preserve the subject matter of the arbitration.
15.9 EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE BY JURY.
15.10 EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE OR EXEMPLARY,
CONSEQUENTIAL DAMAGES FROM THE OTHER.
15.11 EACH PARTY HERETO WAIVES ANY CLAIM FOR ATTORNEYS' FEES AND COSTS
AND PREJUDGMENT INTEREST FROM THE OTHER.
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> 21
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
15.12 Any dispute, controversy or claim arising out of or related to
this agreement, or the interpretation, application, breach, termination or
validity thereof, including any claim of inducement by fraud or otherwise, which
claim would, but for this provision, be submitted to arbitration shall, before
submission to arbitration, first be mediated through non-binding mediation in
accordance with the Model Procedures for the Mediation of Business Disputes
promulgated by the CPR then in effect, except where those rules conflict with
these provisions, in which case these provisions control. The mediation will be
held in Cincinnati, Ohio and shall be attended by a senior executive with
authority to resolve the dispute from each of the operating companies that are
parties.
15.13 The mediator shall be neutral, independent, disinterested and
shall be selected from a professional mediation firm such as ADR Associates or
JAMS/ENDISPUTE or CPR.
15.14 The Parties shall promptly confer in an effort to select a
mediator by mutual agreement. In the absence of such an agreement within fifteen
(15) days of initiation of the mediation, the mediator shall be selected by CPR
from a list generated by CPR with each Party having the right to exercise
challenges for cause and two (2) peremptory challenges within seventy-two (72)
hours of receiving the CPR list.
15.15 The mediator shall confer with the Parties to design procedures to
conclude the mediation within no more than forty-five (45) days after
initiation. Under no circumstances shall the commencement of arbitration under
Section 15.1 above be delayed more than forty-five (45) days by the mediation
process specified herein.
15.16 Each Party agrees not to use the period or pendancy of the
mediation to disadvantage the other Party procedurally or otherwise. No
statements made by either side during the mediation may be used by the other or
referred to during any subsequent arbitration.
15.17 Each Party has the right to pursue provisional relief from any
court, such as attachment, preliminary injunction, replevin, etc., to avoid
irreparable harm, maintain the STATUS QUO, or preserve the subject matter of the
arbitration, even though mediation has not been commenced or completed.
ARTICLE 16 - DISCLAIMER
-----------------------
***. Furthermore, all business decisions, including without
limitation, sale, price and promotion of the Product marketed under this
Agreement and the decision whether to sell the Product shall be within the sole
discretion of ***. Neoprobe realizes that Ethicon (and its Affiliates) already
sells a complete line of diagnostic and surgical devices and *** under this
Agreement.
ARTICLE 17 - MISCELLANEOUS
--------------------------
17.1 ***
17.2 TRANSFER AND ASSIGNMENT. Neither Party shall transfer or assign
this Agreement, in whole or in part, without the prior written consent of the
other Party (which shall not be unreasonably withheld); except that Ethicon may,
without such consent, assign this Agreement to an Affiliate or with the sale of
substantially all 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.
<PAGE> 22
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
the assets of the business to which the Products relate.
17.3 COMMUNICATIONS. All communications, purchase orders, invoices,
payments and notices required or called for under this Agreement shall be in
writing, shall be transmitted by facsimile or first class mail, postage prepaid,
and shall be deemed delivered upon confirmed receipt if by facsimile or mailing
to the address below or to such other address as either Party may give to the
other in writing:
If to Ethicon:
Ethicon Endo-Surgery, Inc.
4545 Creek Road
Cincinnati, Ohio 45242
Attn: President
facsimile: (513) 483-8945
If to Neoprobe:
Neoprobe Corporation
425 Metro Place North, Suite 300
Dublin, Ohio 43017
Attn: President
facsimile: (614) 793-7522
17.4 RELATIONSHIP OF PARTIES The Parties hereto are entering into this
Agreement as independent contractors, and nothing herein is intended or shall be
construed to create between the Parties a relationship of principal and agent,
partners, joint venturers or employer and employee. Neither Party shall hold
itself out to others or seek to bind or commit the other Party in any manner
inconsistent with the foregoing provisions of this Article 17.
17.5 NO WAIVER. The failure of either Party to enforce at any time for
any period the provisions of this Agreement shall not be construed to be a
waiver of such provisions or of the right of such Party thereafter to enforce
each such provision.
17.6 MAJOR FORCES. Subject to Ethicon's rights set forth in Article 12
above, neither Party shall be responsible for and the terms of this Agreement
shall be inapplicable to any defaults or delays which are due to unforeseen
causes beyond the Parties' control including, but without limitation, acts of
God or public enemy, acts or other order of a government, particularly full
market approval by the United States Food and Drug Administration and any
foreign government equivalent approval, fire, flood or other natural disasters,
embargoes, accidents, explosions, strikes or other labor disturbances
(regardless of the reasonableness of the demands of labor), shortage of fuel,
power or raw materials, inability to obtain or delays of transportation
facilities, incidents of war, or other unforeseen events causing the inability
of a Party, acting in good faith with due diligence, to perform its obligations
under this Agreement.
17.7 PUBLICITY. With respect to any other publicity, neither Party shall
originate any such publicity, news release or public announcement, written or
oral, whether to the public or press, stockholders or otherwise, relating to
this Agreement or any of its terms, to any amendment or performances under the
Agreement, save only such announcements as in the opinion of counsel for the
Party making such announcement is required by law to be made. If a Party decides
to make an additional announcement required by law under this Agreement, it will
give the other Party thirty (30) days advance written notice, or any shorter
notice period otherwise required by law, of the text of the announcement so that
the other Party will have an opportunity to comment upon the announcement.
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
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
17.8 BANKRUPTCY All licenses granted under or pursuant to this
Agreement, by Neoprobe to Ethicon are for all purposes of Section 365(n) of the
Bankruptcy Code, licenses to "intellectual property" as defined in the
Bankruptcy Code. The Parties agree that Ethicon, as a licensee of such rights
under this Agreement, shall retain and may fully exercise all of its rights and
elections under the Bankruptcy Code. Neoprobe agrees during the term of this
Agreement to create and maintain current copies or, if not amenable to copying,
detailed descriptions or other appropriate embodiments, of all such licensed
intellectual property. If a case is commenced by or against Neoprobe under the
Bankruptcy Code, then, unless and until this Agreement is rejected as provided
in the Bankruptcy Code, Neoprobe (in any capacity, including
debtor-in-possession) and its successors and assigns (including, without
limitation, a Bankruptcy Code trustee) shall either perform all of the
obligations provided in this Agreement to be performed by Neoprobe or provide to
Ethicon all such intellectual property (including all embodiments thereof) held
by Neoprobe and such successors and assigns, as Ethicon may elect in a written
request, immediately upon such request. If a Bankruptcy Code case is commenced
by or against Neoprobe, this Agreement is rejected as provided in the Bankruptcy
Code and Ethicon elects to retain its rights hereunder as provided in the
Bankruptcy Code, then Neoprobe (in any capacity, including debtor-in-possession)
and its successors and assigns (including, without limitation, a Bankruptcy Code
trustee) shall provide to Ethicon all such intellectual property (including all
embodiments thereof) held by Neoprobe and such successors and assigns
immediately upon Ethicon's written request therefor. All rights, powers and
remedies of Ethicon provided under this Article are in addition to and not in
substitution for any and all other rights, powers and remedies now or hereafter
existing at law or in equity (including, without limitation, the Bankruptcy
Code) in the event of any such commencement of a bankruptcy proceeding by or
against Neoprobe. Ethicon, in addition to the rights, powers and remedies
expressly provided herein, shall be entitled to exercise all other such rights
and powers and resort to all other such remedies as may now or hereafter exist
at law or in equity (including the Bankruptcy Code) in such event.
17.9 ENTIRE AGREEMENT. The Parties have, in this Agreement, incorporated
all representations, warranties, covenants, commitments and understandings on
which they have relied in entering into this Agreement and, except as provided
herein, the Parties make no covenants or other commitments to the other
concerning their future actions. Accordingly, this Agreement
(a) constitutes the entire agreement and understanding
between the Parties, and there are no promises, representations, conditions,
provisions or terms relating to it other than as set forth in this Agreement,
and
(b) supersedes all previous understandings, agreements
and representations between the Parties, written or oral, relating to the
subject matter of this Agreement. This Agreement may be altered or amended only
upon mutual written consent.
17.10 SURVIVAL OF CERTAIN PROVISIONS. The provisions of this Agreement
set forth in Sections 3.2, 5.22, 10.2, 13.3, 14.3, 14.4, 17.7 and 17.14 and
Articles 7, 8, 9, 11, 12 and 15 any remedies for the breach thereof, shall
survive the termination of this Agreement under the terms hereof.
17.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.12 EXPENSES. Each party shall pay all of its own fees and expenses
(including all legal, accounting and other advisory fees) incurred in connection
with the negotiation and execution of this Agreement and the arrangements
contemplated hereby.
17.13 MODIFICATIONS AND AMENDMENTS. This Agreement shall not be modified
or otherwise amended except pursuant to an instrument in writing executed and
delivered by each of the parties hereto.
17.14 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or
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> 24
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
17.15 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Ohio, without giving effect to the
choice of laws provisions thereof.
17.16 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
The Parties agree to the terms of this Agreement, as indicated by the
signatures of their respective corporate officers, duly authorized as of the
last date of signature below.
NEOPROBE CORPORATION ETHICON ENDO-SURGERY, INC.
By: /s/ David Bupp By: /s/ Alastair Clemon
Name: David Bupp Name: Alastair Clemon
Title: President, CEO Title: V.P. Business Development
Date: Sept. 28, 1999 Date: Sept. 28, 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> 25
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Appendix A Patent, Computer Software, and Mask Work License Agreement
APPENDIX A
PATENT, COMPUTER SOFTWARE, AND MASK WORK LICENSE AGREEMENT
This is an agreement (hereinafter referred to as "Agreement") dated and
effective as of September, 28, 1999 ("Effective Date"), by and between the
following parties:
a) Ethicon Endo-Surgery, Inc., a corporation organized under the laws
of the State of Ohio, having its principal office at 4545 Creek Road,
Cincinnati, Ohio 45242 ("Ethicon"); and
b) Neoprobe Corporation, a corporation having its principal office at
425 Metro Place North, Suite 300, Dublin, Ohio ("Licensor").
ARTICLE 1 - BACKGROUND
----------------------
1.1 Licensor has represented to Ethicon that it owns issued U.S. and
foreign patents, copyrighted computer software, mask works, and pending U.S. and
foreign patent applications, covering instruments for radiation detection.
1.2 Ethicon desires to obtain an exclusive license from the Licensor
under such patents and equivalent pending patent applications. Ethicon further
desires to obtain an exclusive license from the Licensor for such copyrighted
software and mask works.
1.3 Licensor is willing to grant such a license to Ethicon upon the
terms and conditions set forth below.
1.4 Ethicon and Licensor have entered into a Distribution Agreement
dated September 28, 1999 to which this Patent, Computer Software, and Mask Work
License Agreement is attached as Appendix A ("Distribution Agreement") whereby
Licensor has granted Ethicon exclusive rights to distribute Licensor's gamma
radiation detection products.
Therefore, in consideration of the mutual promises contained in this
Agreement, the parties agree as follows:
ARTICLE 2 - DEFINITIONS
-----------------------
The following terms, when used with initial capital letters, shall have
the meanings set forth below, terms set forth herein in capital letters and not
defined below shall have the meanings set forth in the Distribution Agreement.
2.1 "Licensed Product" is any instrument, or other product developed by
or for Ethicon, which, but for the licenses granted under this Agreement, would
infringe at least one Valid Claim of the Licensed Patents in the country in
which any Licensed Product is made, used or sold or which uses any Know How,
Licensed Software or Licensed Mask Works.
2.2 "Licensed Patents" are the U.S. Patent applications and U.S.
Patents listed in Schedule 2.11 of the Distribution Agreement as well as any
counterpart patent applications and any patents subsequently issuing from such
applications. Licensed Patents shall also include any other counterparts of the
above worldwide, as well as all continuations, continuations-in-part, divisions,
renewals, reissues, reexaminations, extensions, and patents of addition and
patents of importation. Furthermore, Licensed Patents shall also include each
patent which Licensor owns or is empowered to grant a license to Ethicon prior
to or during the term of this Agreement, the practice of which is reasonably
necessary for Ethicon to make, have made, use, sell, offer for sale, import or
otherwise dispose of a Licensed Product.
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> 26
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
2.3 "Licensed Software" shall mean any copyrightable computer software
(both source code and object code) used in connection with the Licensed
Products.
2.4 "Licensed Mask Work" shall mean any "mask work," as defined in
Section 901 of the U.S. Copyright Act, used in connection with the Licensed
Products.
2.5 "Derivative Work" shall mean a work that is based upon one or more
pre-existing works, such as a revision, modification, translation, abridgment,
condensation, expansion, or any other form in which such pre-existing works may
be recast, transformed, or adapted and that, if prepared without authorization
of the owner of the copyright in such pre-existing work would constitute a
copyright infringement. For purposes hereof, a "Derivative Work" shall also
include any compilation that incorporates such a pre-existing work.
2.6 "Valid Claim" is a bona fide, unexpired issued claim in the
Licensed Patents which has not been held invalid or unenforceable by a decision
of a court or other governmental agency of competent jurisdiction, unappealable
or unappealed within the time allowed for appeal, and which has not been
admitted to be invalid by the Licensor or his successors or assigns through
reissue or disclaimer.
2.7 "Net Sales" is the revenue which Ethicon or its Affiliates actually
collect from the sale of the Licensed Product to an unaffiliated third party,
less the following amounts: (i) discounts, including cash discounts, or rebates
actually allowed or granted, (ii) credits or allowances actually granted upon
claims or returns regardless of the party requesting the return, (iii) freight
charges paid for delivery, and (iv) taxes or other governmental charges levied
on or measured by the invoiced amount whether absorbed by the billing or the
billed party.
ARTICLE 3 - TERM
----------------
Unless otherwise terminated in accordance with the provisions of
Article 10 herein, the term of this Agreement shall be from the Effective Date
until the date upon which the last of the Licensed Patents expires.
ARTICLE 4 - LICENSE GRANT AND RELEASE
-------------------------------------
4.1 In addition to the rights and licenses granted to Ethicon under the
Distribution Agreement and subject to the terms and conditions of this
Agreement, Licensor grants Ethicon the following licenses:
(a) a non-exclusive, worldwide, fully paid-up license under the
Licensed Patents and Know How to make, have made, use, sell, offer for
sale, import or otherwise dispose of, the Licensed Product;
(b) a non-exclusive, worldwide, fully paid-up license under the
Licensed Software to make, display, have made, make derivative works
from, use, sell, offer for sale, import, or otherwise dispose of the
Licensed Product; and
(c) a non-exclusive, worldwide, fully paid-up license under the
Licensed Mask Works to make, have made, use, sell, offer for sale,
import or otherwise dispose of, and reproduce the Mask Work by optical,
electronic or any other means in, the Licensed Product.
4.2 In the event that the Distribution Agreement is terminated by
Licensor in accordance with the provisions of Article 14.1 of the Distribution
Agreement, Ethicon's Licenses under Article 4.1 above shall remain in effect,
however, Ethicon shall thereafter be required to pay Licensor a royalty of ***
of Licensed Products where, but for the licenses granted under this Agreement,
such Licensed Product would infringe at least one Valid Claim of the Licensed
Patents in the country in which any Licensed Product is made, used or sold. No
multiple earned royalties shall be payable because the Licensed Product is
covered by more than one of the Licensed Patents. If Ethicon takes a third party
license to a patent which covers a Licensed Product, ***.
4.3 Ethicon shall have the right to extend the licenses granted herein
to any of its Affiliates, upon the terms and conditions of this Agreement,
provided Ethicon agrees in writing to be responsible for the performance by such
Affiliates of all of Ethicon's obligations hereunder.
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> 27
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
4.4 Licensor forever releases and discharges Ethicon and its
Affiliates, directors, officers, employees, suppliers and customers (the
"Released Parties") from and against all claims, liabilities, damages and other
expenses whatsoever relating to the manufacture, use, sale, offer for sale or
importation of the Licensed Product by or on behalf of the Released Parties
prior to the Effective Date.
4.5 Any Derivative Work created by or for Ethicon based upon the
Licensed Software or Licensed Mask Work shall be the *** property of Ethicon,
and with respect to the Licensed Software or Licensed Mask Work upon which this
Derivative Work is based, Ethicon's license granted under 4.1 (b) or (c) shall
be perpetual and fully paid-up.
ARTICLE 5 - PAYMENTS
--------------------
5.1 NON-REFUNDABLE UPFRONT PAYMENT In full consideration for the
execution of this Agreement, and for the exclusive license and release granted
to Ethicon under Article 4 herein, Ethicon shall pay Licensor the non-refundable
sum of four million dollars ($4,000,000.00) within three (3) business days of
the Effective Date.
5.2 ROYALTY PAYMENTS Except as specifically set forth herein, Ethicon
shall not have any royalty obligations during the term of this Agreement.
5.3 UPFRONT PAYMENT AS ADEQUATE CONSIDERATION Except as specifically
set forth in the Distribution Agreement, Licensor shall consider the upfront
payment set forth in Article 5.1 above as complete satisfaction of any duty,
whether express or implied, which could be imposed upon Ethicon to commercially
exploit its rights during the term of this Agreement, and is accepted by
Licensor in lieu of any best efforts or other obligation on the part of Ethicon.
ARTICLE 6 - RESERVED
--------------------
ARTICLE 7 - ENFORCEMENT
-----------------------
The parties acknowledge that it is of the utmost importance to Ethicon to ensure
that infringement of the Licensed Patents is prevented. Accordingly, each party
shall promptly notify the other party in writing of any infringement by third
parties relating to the Licensed Patents. If within ninety (90) days of such
notice Licensor has not entered into a royalty-bearing license agreement with
such third party under the Licensed Patents or such third party continues its
infringing activity, then Licensor shall thereafter promptly initiate and
diligently pursue legal proceedings against such third party to protect the
Licensed Patents, provided that Licensor shall not be obligated to initiate
separate litigation against more than one infringer at any one time. Should
Licensor fail to take prompt legal action or diligently pursue legal
proceedings, then Ethicon shall be relieved of its obligation to make the earned
royalty payments set forth in Article 4.2 above until such time as either
Licensor enters into a royalty-bearing license agreement with such third party
under the Licensed Patents or such third party discontinues its infringing
activity.
ARTICLE 8 - PATENT PROSECUTION AND MAINTENANCE
----------------------------------------------
8.1 Licensor is solely responsible for the continued prosecution of any
pending patent applications included in the Licensed Patents, as well as the
prosecution of patent applications subsequently filed pursuant to Article 8.2
below. Licensor shall also be solely responsible for the issuance of such
applications after allowance.
8.2 Licensor shall pay all government fees in any given country
required to maintain the Licensed Patents, including official taxes, annuities
and maintenance fees. Any decision to pay any such taxes, annuities or
maintenance fees shall be in the sole discretion of Licensor and Licensor may,
at any time, after providing written notice to Licensee, drop prosecution or
maintenance of any Licensed Patent.
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> 28
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
ARTICLE 9 - WARRANTIES AND REPRESENTATIONS
------------------------------------------
9.1 Licensor expressly warrants and represents that a) it owns all of
the right, title and interest in and to the Licensed Patents, Licensed Software,
and Licensed Mask Works; b) it is empowered to grant the licenses and release
granted herein; c) it has no outstanding encumbrances or agreements, including
any agreements with academic institutions, universities, or third party
employers, whether written, oral or implied, which would be inconsistent with
the licenses and release granted herein; d) the Licensed Patents are the only
patents or pending patent applications related to any instrument for radiation
detection which the Licensor currently owns or otherwise have the right to grant
licenses therein, whether domestic or foreign; and e) it is unaware of any
information which would raise a substantial question of the validity of any of
the Licensed Patents, Licensed Software, or Licensed Mask Works.
9.2 Licensor shall indemnify and hold Ethicon harmless from all
liabilities, demands, damages, expenses and losses upon the breach of any of the
warranties and representations set forth in Article 9.1 above. In the event of
any breach of the warranties and representations set forth in Article 9.1 above,
Licensee shall be entitled to recover all payments made to Licensor under
article 5.1 above.
ARTICLE 10 - TERMINATION
------------------------
10.1 Ethicon may terminate either this Agreement in full or a portion
of its exclusive license in any given country at any time during the term of
this Agreement upon four (4) months written notice to Licensor, and such
termination shall become effective at the end of the four (4) month notice
period.
10.2 Either party may terminate this Agreement upon *** written notice
for any material breach or default of the other party. Such termination shall
(subject to the provisions of Article 11 below) become effective at the end of
the *** period unless during such period the party in breach or default cures
such breach or default.
ARTICLE 11 - RESOLUTION OF DISPUTES
-----------------------------------
11.1 Any dispute, claim or controversy arising from or related in any
way to this agreement or the interpretation, application, breach, termination or
validity thereof, including any claim of inducement of this agreement by fraud
or otherwise, shall be settled in accordance with the provisions of Article 15
of the Distribution Agreement.
11.2 From the date one party notifies the other it wishes to commence
an arbitration proceeding until such time as the matter has been finally settled
by arbitration, the running of the time period set forth in Article 10.1 above,
as to which a party must cure a breach, shall be suspended as to the subject
matter of the dispute.
ARTICLE 12 - MISCELLANEOUS
--------------------------
12.1 BUSINESS DECISIONS Subject to the provisions of the Distribution
Agreement, all business decisions, including without limitation the design,
manufacture, sale, price and promotion of the Licensed Product shall be within
the sole discretion of ***.
12.2 CONFIDENTIALITY AND PUBLICITY Neither party shall disclose the
financial terms of this Agreement to an unaffiliated third party, except for
legal, financial, accounting or other similar advisors who agree to keep the
financial terms of this Agreement confidential, without the prior written
approval of the other party. Furthermore, neither party will originate any
publicity, news release, or other public announcement, written or oral, whether
to the public press, to stockholders, or otherwise, relating to this Agreement,
to any amendment hereto or to performance hereunder or the existence of an
arrangement
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> 29
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
between the parties without the prior written approval of the other party.
12.3 NOTICES All notices hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, one day after delivery
to a nationally recognized overnight delivery service, charges prepaid, three
days after sent by registered or certified mail, postage prepaid, or when
receipt is confirmed if by, facsimile or other telegraphic means:
In the case of Licensor:
Neoprobe Corporation
425 Metro Place North, Suite 300
Dublin, Ohio 43017
Attn: President
Facsimile: (614) 793-7522
In the case of Ethicon:
Ethicon Endo-Surgery, Inc.
4545 Creek Road
Cincinnati, Ohio 45242
Attn: President
Facsimile: (513) 483-8945
With a copy to:
Chief Patent Counsel
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Such addresses may be altered by written notice given in accordance
with this Article 12.3.
12.4 ASSIGNMENT Ethicon may assign this Agreement or any rights and
obligations contemplated herein to an Affiliate of Ethicon or to a company
acquiring substantially all of the assets of Ethicon to which this Agreement
relates, without the consent of Licensor, upon giving written notice thereof to
Licensor. In all other instances, neither Ethicon nor Licensor shall assign this
Agreement or any rights granted hereunder without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall bind and inure
to the benefit of the respective parties hereto and their successors and
assigns.
12.5 FORCE MAJEURE Any delays in or failures of performance by either
party under this Agreement shall not be considered a breach of this Agreement if
and to the extent caused by occurrences beyond the reasonable control of the
party affected, including but not limited to: acts of God; acts, regulations or
laws of any government; strikes or other concerted acts of workers; fires;
floods; explosions; riots; wars; rebellions; and sabotage; and any time for
performance hereunder shall be extended by the actual time of delay caused by
such occurrence.
12.6 LICENSOR BANKRUPTCY Notwithstanding anything to the contrary in
the Distribution Agreement, all rights and licenses granted under or pursuant to
this Agreement by Licensor to Ethicon are, for all purposes of Section 365(n) of
Title 11, U.S. Code (the "Bankruptcy Code"), licenses of rights to "intellectual
property" as defined in the Bankruptcy Code. The parties agree that Ethicon, as
a licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the Bankruptcy Code. Licensor
agrees during the term of this Agreement to create and maintain current copies
or, if not amenable to copying, detailed descriptions or other appropriate
embodiments, of all such licensed intellectual property.
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> 30
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
If a case is commenced by or against Licensor under the Bankruptcy Code, then,
unless and until this Agreement is rejected as provided in the Bankruptcy Code,
Licensor (in any capacity, including debtor-in-possession) and its successors
and assigns (including, without limitation, a Bankruptcy Code trustee) shall
either perform all of the obligations provided in this Agreement to be performed
by Licensor or provide to Ethicon all such intellectual property (including all
embodiments thereof) held by Licensor and such successors and assigns, as
Ethicon may elect in a written request, immediately upon such request. If a
Bankruptcy Code case is commenced by or against Licensor, this Agreement is
rejected as provided in the Bankruptcy Code and Ethicon elects to retain its
rights hereunder as provided in the Bankruptcy Code, then Licensor (in any
capacity, including debtor-in-possession) and its successors and assigns
(including, without limitation, a Bankruptcy Code trustee) shall provide to
Ethicon all such intellectual property (including all embodiments thereof) held
by Licensor and such successors and assigns immediately upon Ethicon's written
request therefor. All rights, powers and remedies of Ethicon provided under this
Article are in addition to and not in substitution for any and all other rights,
powers and remedies now or hereafter existing at law or in equity (including,
without limitation, the Bankruptcy Code) in the event of any such commencement
of a bankruptcy proceeding by or against Licensor. Ethicon, in addition to the
rights, powers and remedies expressly provided herein, shall be entitled to
exercise all other such rights and powers and resort to all other such remedies
as may now or hereafter exist at law or in equity (including the Bankruptcy
Code) in such event.
12.7 RELATIONSHIP OF PARTIES The parties hereto are entering into this
Agreement as independent contractors, and nothing herein is intended or shall be
construed to create between the parties a relationship of principal and agent,
partners, joint venturers or employer and employee. Neither party shall hold
itself out to others or seek to bind or commit the other party in any manner
inconsistent with the foregoing provisions of this Article.
12.8 INTEGRATION It is the mutual desire and intent of the parties to
provide certainty as to their future rights and remedies against each other by
defining the extent of their mutual undertakings as provided herein. The parties
have in this Agreement incorporated all representations, warranties, covenants,
commitments and understandings on which they have relied in entering into this
Agreement and, except as provided for herein and in the Distribution Agreement,
neither party has made any covenant or other commitment to the other concerning
its future action. Except where specifically set forth herein, in the event of
any conflict between the terms of this Agreement and the Distribution Agreement,
the terms of the Distribution Agreement shall control. Accordingly, except as
expressly set forth herein, this Agreement constitutes the entire agreement and
understanding between the parties with respect to the matters contained herein,
and there are no prior oral or written promises, representations, conditions,
provisions or terms related thereto other than those set forth in this
Agreement. The parties may from time to time during the term of this Agreement
modify any of its provisions by mutual agreement in writing.
12.9 HEADINGS The inclusion of headings in this Agreement is for
convenience only and shall not affect the construction or interpretation hereof.
This Agreement is signed on the dates set forth below by duly
authorized representatives of Ethicon and the Licensor, respectively.
Licensor Ethicon Endo-Surgery, Inc.
By: /s/ David Bupp By: /s/ Alastair Clemon
President, CEO
Date: Sept. 28, 1999 Date: Sept. 28, 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> 31
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 32
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 2.11 Patents and Patent Applications
NEOPROBE PATENTS
PATENT NUMBER SERIAL NUMBER FILING DATE PATENT TITLE
*** *** *** ***
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> 33
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 2.15 Products
<TABLE>
<CAPTION>
NEOPROBE MODEL # DESCRIPTION NEOPROBE MODEL # DESCRIPTION
<S> <C> <C> <C>
*** *** *** ***
</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.
<PAGE> 34
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 2.19
Trademarks
SCHEDULE 2.19
NEOPROBE TRADEMARKS & TRADE NAMES (1)
<TABLE>
<CAPTION>
U.S. REGISTRATION # OUS REGISTRATION #
<S> <C> <C> <C>
Audible Tone Sequence ***
Neoprobe *** *** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
Neoprobe and Design *** ***
Blue Tip ***
NE02000 ***
*** ***
*** ***
</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.
<PAGE> 35
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 3.2 Third Party Agreements
SCHEDULE 3.2
DATE OF DELIVERY OF EXCLUSIVE DISTRIBUTION RIGHTS
PARTY TERRITORY DATE*
*** *** ***
***
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> 36
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 5.2 Transfer Pricing for Products
SCHEDULE 5.2
TRANSFER PRICING
----------------
I. SALEABLE PRODUCT
A. The following schedule shall be used, in conjunction with paragraph
I.B., to determine the applicable per unit Transfer Price for all
Products meeting the Specifications.
<TABLE>
<CAPTION>
Commercial Product description(2) Provisional Transfer Floor Actual Transfer
Year Price(4) Price(6) Price
<S> <C> <C> <C> <C>
Initial Period(1) *** *** *** ***
All other Products *** ***
*** Products *** *** ***
Year *** *** *** *** *** during ***
*** ***
*** Products *** *** ***
Years *** *** *** *** ***
*** *** *** ***
*** *** *** *** ***
*** *** *** ***
</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.
<PAGE> 37
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
NOTES
1. For purposes of this Schedule 5.2 only, the Initial Period shall mean the
period beginning on the Effective Date of the Agreement and ending on ***.
2. Products described include all Products as defined in Section 2.15 of the
Agreement.
3. For purposes of this Schedule 5.2, a "System" shall be defined as one (1)
*** unit, one (1) *** and other accessories (including, but not limited to,
*** ) sold as a package meeting the Specifications.
4. The Provisional Transfer Price (the "Provisional Price") is the amount that
shall be used solely for purchase orders and invoicing purposes. The
Provisional Price shall be recalculated annually, by the end of the first
calendar quarter of each Commercial Year, and will then be in effect for
the subsequent twelve-month period as described in paragraph I.B.2.
5. Net Selling Price ("NSP") shall mean the revenue received by Ethicon or an
Affiliate from the sale of the Product to an independent third party less
the following amounts: (i) discounts, including cash discounts, or rebates
actually allowed or granted; (ii) credits or allowances actually granted
upon claims or returns, regardless of the party requesting the return;
(iii) freight charges paid for customer delivery; and (iv) taxes or other
governmental charges levied on or measured by the invoiced amount whether
absorbed by the billing or billed party. Commissions paid by Ethicon to its
sales representatives shall not be deducted from the amount that Ethicon
charges to such third party in determining the NSP.
6. Average Net Selling Price ("Average NSP") shall mean the sum of the NSP for
all units sold during the commercial year, including *** as provided for in
Section 3.2 and 3.3, divided by the total number of units sold during that
same commercial year provided that the total number of units is ***
Commercial Year.
7. "Floor Price" shall mean the minimum Transfer Price and the minimum
Provisional Price for a unit as defined in the schedule above or based on
the actual cost ("Cost") to manufacture plus the indicated percentage
mark-up. The Cost to manufacture are the direct material and labor costs
for Products supplied to Neoprobe from its suppliers plus Neoprobe's direct
and indirect overhead charges, provided that any cost reductions or
volume-related discounts or other associated cost savings are applied to
the Cost in the Floor Price calculation. Neoprobe's overhead charges
mentioned above
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> 38
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
shall be calculated in like manner as the "Current Cost Estimate" shown in
the table in paragraph II.
B. PROVISIONAL PRICE CALCULATION
1. During the Initial Period, the Provisional Price for each unit
shipped to Ethicon will be as established in the schedule in
paragraph I.A.
2. During the first calendar quarter of each Commercial Year, the
average NSP will be recalculated based on the actual world-wide
sales recognized during the prior Commercial Year, except that,
***, the average NSP will be recalculated based on the actual
world-wide sales recognized during the period from the Effective
Date to ***.
3. Concurrently, the Provisional Price will also be recalculated
based on the recalculated average NSP as described above. The
recalculated Provisional Price shall be equal to the recalculated
average NSP multiplied by the percentage indicated in the
"Provisional Transfer Price" column of the schedule in paragraph
I.A. above or the amount in the "Floor Price" column, whichever is
greater. This revised Provisional Price will be in effect for the
following twelve-month period, and will be communicated to
Neoprobe no later than March 31 of each Commercial Year.
C. RECONCILIATION TO ACTUAL TRANSFER PRICE
On ***, the Provisional Price will be reconciled to the actual Transfer
Price based on actual, world-wide average NSP for the period from the
Effective Date ***. After the Initial Reconciliation, the Provisional
Price will be reconciled to the actual Transfer Price by the end of the
first calendar quarter of each Commercial Year, i.e. March 31, based on
actual, world-wide average NSP for the previous Commercial Year. Any
overpayments or underpayments to Neoprobe shall be reflected on the
first invoice to Ethicon after April 1 as a lump-sum adjustment.
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> 39
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
II. SAMPLE DEMONSTRATION UNITS
Products purchased by Ethicon to be used as promotional product
demonstration units, training units or sales representative samples will be
priced according to the calculation under "Demonstration Unit Pricing"
under the following schedule:
<TABLE>
<CAPTION>
Demonstration Unit Current Cost Estimated
Pricing Estimate Demonstration Unit
Price1
<S> <C> <C> <C>
***
*** ***
*** *** *** ***
CONTROL UNIT ONLY:
*** *** *** ***
*** *** *** ***
*** *** *** ***
PROBES:
*** *** *** ***
*** *** *** ***
***
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** ***
*** *** *** ***
ALL OTHER PRODUCTS ***
</TABLE>
NOTES
1. The "Estimated Demonstration unit Price" is based on the current estimated
Cost of the Products provided to Ethicon by Neoprobe as shown in the
"Current Cost Estimate" column in the above schedule and represents the
maximum Demonstration Unit Price. It is agreed that any cost reductions,
volume-related deductions or associated Cost savings shall reduce the cost
in the demonstration unit pricing calculation.
2. The Demonstration Unit Price of *** for the returned and refurbished
demonstration units ("Returned Units") from *** only. The maximum quantity
of Returned Units is ***. Any and all other demonstration system purchases
shall be made at the *** whichever is less. For tracking and compliance
purposes, Neoprobe shall provide Ehticon with a list of serial numbers for
those demonstration units *** including serial numbers for all related
components.
3. The Demonstration Unit Price of *** demonstration units from the *** only.
The maximum quantity of *** Blue Tip ***. Any and all other demonstration
unit purchases shall be made at the ***. For tracking and compliance
purposes, Neoprobe shall provide Ethicon with a list of serial numbers for
those demonstration units owned by the current U.S. distributor including
serial numbers for all related components.
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> 40
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 5.6 Sales and Marketing Literature
LIST OF APPROVED MARKETING LITERATURE
<TABLE>
<CAPTION>
DOCUMENT REVIEW USE QUANTITY
NUMBER AS OF
9/15/99
<S> <C> <C> <C>
neo2000tm BlueTipTM Probe Sales 99-581 *** ***
Training Binder
neo2000tm Gamma Detection 99-582 *** ***
System Operation Manual
neo2000tm Gamma Detection 99-583 *** ***
System Operation Training Binder
Neoprobe 14mm Reusable Probe 99-584 *** ***
Sales Aid
neo2000tm BlueTipTM Probe Sales 99-585 *** ***
Aid
neo2000tm Gamma Detection 99-586 *** ***
System Sales Aid
</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.
<PAGE> 41
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 5.18 Sales and Marketing Organization
Schedule 5.18 Sales and Marketing Organization
<TABLE>
<CAPTION>
***
Employee Location Title Hire Date
<S> <C> <C> <C>
*** *** *** ***
***
*** *** *** ***
</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.
<PAGE> 42
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 5.25 ***
***
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> 43
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 6.1 R&D ***
SCHEDULE 6.1
***
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 44
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 6.3 R&D Programs
SCHEDULE 6.3
EXISTING NEOPROBE R&D PROGRAMS
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION IMPACT AVAILABILITY
<S> <C> <C> <C>
*** *** *** ***
</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.
<PAGE> 45
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Schedule 10.2 *** Descriptions
SCHEDULE 10.2
MATERIAL FOR ***
1) ***
2) ***
3) ***
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 46
Confidential portions of this Exhibit are subject to a Request for Confidential
Treatment under Rule 24b-2
Exhibit 2.17 ***
***
1. *** .
2. *** .
3. *** .
4. *** .
5. *** .
6. ***.
Text which has been omitted and filed separately under Rule 24b-2, pursuant to
which Neoprobe Corporation has requested confidential treatment of this
information, has been replaced by " *** " in this Exhibit.
<PAGE> 1
Exhibit 11.1
NEOPROBE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Loss attributable to common stockholders ($ 3,536,832) ($ 5,604,963) ($ 8,127,047) ($17,929,631)
Weighted average number of
shares outstanding:
Weighted average common shares
outstanding beginning of period 23,032,910 22,840,017 22,887,910 22,763,430
Weighted average common shares
issued during period 11,495 44,511 100,998 59,952
------------ ------------ ------------ ------------
Weighted average number of shares outstanding
used in computing basic net loss per share 23,044,405 22,884,528 22,988,908 22,823,382
============ ============ ============ ============
Weighted average number of shares used in
computing diluted net loss per share 23,044,405 22,884,528 22,988,908 22,823,382
============ ============ ============ ============
Earnings (Net Loss) Per Share:
Basic ($ 0.15) ($ 0.24) ($ 0.35) ($ 0.79)
============ ============ ============ ============
Diluted ($ 0.15) ($ 0.24) ($ 0.35) ($ 0.79)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000810509
<NAME> NEOPROBE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> DEC-31-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,783,354
<SECURITIES> 0
<RECEIVABLES> 2,049,199
<ALLOWANCES> 135,000
<INVENTORY> 1,944,460
<CURRENT-ASSETS> 9,096,718
<PP&E> 3,085,859
<DEPRECIATION> 1,904,816
<TOTAL-ASSETS> 12,556,224
<CURRENT-LIABILITIES> 6,025,003
<BONDS> 82,146
3,708,036
0
<COMMON> 23,047
<OTHER-SE> (482,008)
<TOTAL-LIABILITY-AND-EQUITY> 12,556,224
<SALES> 5,226,406
<TOTAL-REVENUES> 5,226,406
<CGS> 1,745,476
<TOTAL-COSTS> 1,745,476
<OTHER-EXPENSES> 1,367,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,783
<INCOME-PRETAX> (4,419,011)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,419,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,419,011)
<EPS-BASIC> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
