<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 0-26984
Neuromedical Systems, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3526980
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Two Executive Boulevard, Suffern, NY 10901-4164
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(Address of Principal Executive Offices)
Registrant's telephone number including area code: (914) 368-3600
--------------
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(Former Name, Former Address and Former
Fiscal Year if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of October 31, 1997, an aggregate of 31,039,385 shares of the Registrant's
common stock, par value $.0001 per share, were outstanding.
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NEUROMEDICAL SYSTEMS, INC.
Table of Contents
Form 10-Q for the Quarterly Period Ended September 30, 1997
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 1997 (unaudited) and December 31, 1996 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 1997
and 1996 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
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Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote
of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Safe Harbor Statement 23
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NEUROMEDICAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- ---------------
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 22,642,000 $ 83,391,000
Short-term investments 30,182,000 -
Accounts receivable, net of allowance 2,550,000 1,650,000
Prepaid expenses 447,000 803,000
Other current assets 788,000 732,000
--------------- ---------------
Total current assets 56,609,000 86,576,000
Restricted cash 819,000 1,000,000
Property and equipment 16,411,000 16,388,000
Intangible assets, net of accumulated amortization
(1997-$563,000, 1996-$450,000) 878,000 166,000
Other assets 658,000 74,000
--------------- ---------------
$ 75,375,000 $104,204,000
=============== ===============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Current portion of notes and bank loans payable $ 2,655,000 $ 1,200,000
Current portion of capital lease obligations 2,294,000 1,972,000
Accounts payable 1,325,000 2,256,000
Accrued liabilities 3,447,000 4,082,000
--------------- ---------------
Total current liabilities 9,721,000 9,510,000
Notes and bank loans payable-long-term 4,189,000 4,704,000
Notes payable-stockholder -- 600,000
Capital lease obligations, less current portion 5,295,000 5,862,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value; authorized -
10,000,000 shares; none issued and outstanding -- --
Common stock, $.0001 par value; authorized -
100,000,000 shares; issued and outstanding - 31,005,695
shares in 1997 and 29,795,049 shares in 1996 3,000 3,000
Additional paid-in capital 178,719,000 177,559,000
Deferred compensation (722,000) --
Accumulated deficit (122,246,000) (94,508,000)
Foreign currency translation 416,000 474,000
--------------- ---------------
Total stockholders' equity 56,170,000 83,528,000
--------------- ---------------
$ 75,375,000 $104,204,000
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</TABLE>
See accompanying notes
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NEUROMEDICAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------ ------------
Revenues:
<S> <C> <C> <C> <C>
Slide processing $ 2,526,000 $ 1,286,000 $ 6,407,000 $ 2,954,000
------------- ------------- ------------ ------------
Total revenues 2,526,000 1,286,000 6,407,000 2,954,000
------------- ------------- ------------ ------------
Costs and Expenses:
Cost of sales 3,138,000 2,085,000 8,390,000 5,709,000
Marketing 3,962,000 6,262,000 14,273,000 13,635,000
Research and development 2,207,000 1,945,000 6,196,000 5,024,000
General and administrative 2,817,000 1,559,000 6,815,000 5,115,000
------------- ------------- ------------ ------------
Total costs and expenses 12,124,000 11,851,000 35,674,000 29,483,000
------------- ------------- ------------ ------------
Loss from operations (9,598,000) (10,565,000) (29,267,000) (26,529,000)
Other income (expense):
Interest income 816,000 1,236,000 2,812,000 4,044,000
Interest expense (397,000) (305,000) (1,213,000) (789,000)
Foreign exchange (65,000) 46,000 (70,000) (539,000)
------------- ------------- ------------ ------------
Other income (expense) - net 354,000 977,000 1,529,000 2,716,000
------------- ------------- ------------ ------------
Net loss $ (9,244,000) $ (9,588,000) $ (27,738,000) $ (23,813,000)
============= ============= ============ ============
Net loss per share $ (0.30) $ (0.33) $ (0.90) $ (0.82)
============= ============= ============ ============
Weighted average shares outstanding 30,931,000 29,450,000 30,891,000 29,117,000
============= ============= ============ ============
</TABLE>
See accompanying notes
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NEUROMEDICAL SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1997 1996
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OPERATING ACTIVITIES
<S> <C> <C>
Net Loss $ (27,738,000) $ (23,813,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,738,000 2,445,000
Foreign exchange (gain) (70,000) --
Issuance of common stock warrants & options for
services rendered 159,000 237,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable (705,000) (291,000)
(Decrease) in accounts payable (1,043,000) (324,000)
(Decrease) increase in accrued liabilities (640,000) 720,000
(Increase) in prepaid expenses
and other assets 441,000 (2,086,000)
--------------- ---------------
Net cash used in operating activities (25,858,000) (23,112,000)
--------------- ---------------
INVESTING ACTIVITIES
Purchases of short-term securities (30,182,000) --
Purchases of property and equipment (3,874,000) (6,531,000)
Acquisition of businesses (1,156,000) --
Loan to officer (600,000) --
--------------- ---------------
Net cash used in investing activities (35,812,000) (6,531,000)
--------------- ---------------
FINANCING ACTIVITIES
Restricted cash 181,000 (1,250,000)
Issuance of common stock 279,000 1,406,000
Proceeds from notes and bank loans 1,690,000 1,001,000
Proceeds from capital lease financing 1,669,000 2,655,000
Payment of notes and bank loans (1,341,000) (1,063,000)
Payments on capital leases (1,671,000) (670,000)
--------------- ---------------
Net cash provided by financing activities 807,000 2,079,000
--------------- ---------------
Effect of exchange rate changes on cash 114,000 547,000
--------------- ---------------
Net (decrease) in cash and cash equivalents (60,749,000) (27,017,000)
Cash and cash equivalents, beginning of period 83,391,000 114,143,000
--------------- ---------------
Cash and cash equivalents, end of period $ 22,642,000 $ 87,126,000
=============== ===============
</TABLE>
See accompanying notes
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NEUROMEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain prior year amounts have been
reclassified to conform with the current year presentation. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Neuromedical Systems, Inc. (the "Company" or "NSI") Annual Report on Form 10-K
for the year ended December 31, 1996. Operating results for the interim periods
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997.
NOTE 2. EMPLOYEE STOCK OPTIONS
During the third quarter of 1997, the Company entered into Replacement Option
Agreements, each dated as of July 28, 1997, with certain Company employees
participating in the Neuromedical Systems, Inc. 1993 Stock Option Plan, as
Amended and Restated October 25, 1995 (each such agreement, a "Replacement
Option Agreement"). Pursuant to the terms of the Replacement Option Agreements,
the Company canceled 1,015,570 employee stock options at exercise prices ranging
from $5.56 to $17.63 per share and issued 942,904 replacement options, each at
an exercise price of $4.00 per share representing the fair market value of the
common stock on the grant date (collectively, the "Replacement Options"). The
Replacement Option Agreements provided for a 1 for 1 exchange of options granted
on or after October 1, 1996, except for senior management (Company Vice
Presidents and above) who received Replacement Options covering shares equal
only to 80% of their respective original option grant amounts received on or
after such date. The Replacement Options vest over a four year period and will
become exercisable beginning in 1998 at a rate of 25% per year on July 28th of
each year until fully vested. If the holder of the Replacement Options is
terminated by the Company without cause prior to July 28 1998, 25% of the
holder's options will vest and become exercisable as of the termination date.
Also in the third quarter, the Company modified the terms of all outstanding
employee stock option
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NEUROMEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
agreements (with the exception of those executed by interim Co-CEOs John B.
Henneman, III and Uzi Ish-Hurwitz) to allow employees to exercise their vested
stock options for a period of two years from the date of their termination if
one of the following two conditions are met: (i) the employee remains in the
employment of the Company for a period of six months after the employment of the
new CEO of the Company, or (ii) the employee is terminated by the Company
without cause prior to the date set forth in (i) above. The foregoing
modification as applied to the interim Co-CEOs extends their respective exercise
period to three years provided that they meet the conditions of clauses (i) or
(ii) above.
NOTE 3. ACQUISITIONS IN HONG KONG, CHINA AND TAIWAN
As previously reported in the Company's Form 10-Q for the period ending June 30,
1997, in an agreement effective as of June 1, 1997, the Company acquired New
System International Ltd., a Hong Kong corporation, for a net purchase price of
$1,564,000. During the third quarter of 1997, the Company completed the
documentation and formalities related to this stock purchase. New System
International Ltd. was previously the operating subsidiary of Papnet (Far East)
Ltd. a Hong Kong corporation ("PFEL"), a distributor of the Company's PAPNET(R)
Testing System in Hong Kong and China. New System International Ltd. also
provides clinical laboratory services through its Hong Kong-based Compuscreen
Medical Diagnostic Centre. Dr. Ng served as president of New System
International Ltd. prior to its acquisition and in the third quarter of 1997
entered into an employment agreement with the Company providing for his
continuation in such capacity.
In an agreement effective as of August 1, 1997, the Company acquired the assets
of the Taiwan PAPNET(R) distributor, Papnet Far East Ltd. (Taiwan) through the
Company's acquisition subsidiary, New System Ltd., for a purchase price of
$392,000. In a related transaction, the Company executed a license and
management services agreement with Papnet Far East Ltd. (Taiwan) for operation
of the Company's assets in Taiwan.
Related to each of the foregoing acquisitions, on September 30, 1997 PFEL
entered into an Amended and Restated Representation Agreement with the Company,
and a Sublicense Agreement with the Company's subsidiary, NSI Asia Pacific Ltd.,
pursuant to which the Company received $800,000 from PFEL for the right of PFEL
to receive a royalty of 3% to 4% based on sales in Hong Kong, China and Taiwan
over a fifteen year period. The Company expects that it will invest additional
cash in its Hong Kong, Taiwan and China businesses to fund operations and
expansion of their respective marketing and sales programs.
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NEUROMEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
NOTE 4. SUBSEQUENT EVENTS - CHANGES IN MANAGEMENT AND BOARD OF DIRECTORS
On November 5, 1997, the Company announced the appointment of Paul Sohmer, M.D.
as President and Chief Executive Officer of the Company, and the election by the
Board of C. Raymond Larkin, Jr. as the non-executive Chairman of the Board. From
June 30, 1997, when the Company announced that Mark R. Rutenberg submitted his
resignation as President and Chief Executive Officer of the Company, the Office
of the Chief Executive was filled jointly by Uzi Ish-Hurwitz and John B.
Henneman, III. Mr. Henneman will continue with the Company in his capacity as
Vice President of Corporate Development, Secretary and General Counsel, and Mr.
Ish-Hurwitz will continue with the Company as Executive Vice President, Chief of
Technical Operations and President, Neuromedical Systems Israel Ltd. In
addition, the Company increased the size of the Company's Board of Directors to
eight (8), and appointed Dr. Sohmer as a Class II member of the Board whose term
will end at the Annual Meeting of Stockholders in 2000. Mark Rutenberg, the
founder of the Company, was appointed non-executive Vice Chairman of the Board
and remains a Class III member of the Board whose term will end at the Annual
Meeting of Stockholders in 1998. Mr. Ish-Hurwitz continues as a Class I Director
of the Board whose term ends at the Annual Meeting of Stockholders in 1999.
The Company entered into an employment agreement with Dr. Sohmer, dated November
4, 1997 (the "Agreement"), which has a term of three years and is renewable
automatically for additional one year terms thereafter unless notice is given by
either party ninety days prior to the end of the then-current term. The material
provisions of the Agreement provide for Dr. Sohmer's employment, annual salary
and bonus eligibility. In addition, the Agreement and related option agreements
provide for a grant of options to Dr. Sohmer to acquire 750,000 shares of
Company Common Stock at an exercise price of $4.56 per share (the fair market
value of the Common Stock on the grant date), and options for an additional
250,000 shares of Common Stock at an exercise price of $10.00 per share. All of
such options vest and become exercisable at a rate of 25% of the total grant on
each anniversary of the grant date.
As previously reported in the Company's Form 10-Q for the period ending June 30,
1997, in connection with the resignation of Mark Rutenberg as President and CEO
of the Company, the Company entered into a revised and restated employment
agreement with Mr. Rutenberg on June 29, 1997 (the "Revised Agreement") which
will remain effective until November 19, 1998. The material provisions of the
Revised Agreement provide for Mr. Rutenberg's continuation of employment with
the Company and participation in the Company's executive benefit plans. In
addition, the Revised Agreement provides for a non-recourse loan to Mr.
Rutenberg from the Company in an amount of $600,000 which is secured by his
pledge of 100,000 shares of Company common stock. The loan is due on the earlier
of November 30, 1999 or the date which is ten days after termination of his
employment for any reason. The Revised Agreement may be terminated for "Cause"
(as defined in the Revised Agreement) or by either party to the Revised
Agreement upon
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NEUROMEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
thirty days written notice. The Revised Agreement provides that
in the event of his voluntary termination prior to November 19, 1998 or if
terminated for Cause, Mr. Rutenberg shall receive $598,000; and if terminated
for reasons other than Cause, he shall receive in addition to such amount, the
equivalent of his remaining base salary as measured from such termination date
until the expiration date of the Revised Agreement. The options held by Mr.
Rutenberg to purchase Company stock have also been extended so as to expire
eight and one-half years after the expiration date of the Revised Agreement,
subject to the terms of such stock options as of the execution date of the
Revised Agreement. In connection with the extension of the options, the Company
will record a non-cash expense amounting to $781,000 over the term of the
Revised Agreement.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The Company's principal activities since its founding in 1988 have been research
and product and organizational development. The Company was established to
develop, manufacture and market systems for computer-assisted screening of
cervical Papanicolaou ("Pap") smears and other cytological specimens. The
Company's revenues are currently being derived from sales of PAPNET(R) testing
services and interest income.
The PAPNET(R) Testing System was approved by the United States Food and Drug
Administration (the "FDA") for commercial use in the United States on November
8, 1995. Prior to that time, the PAPNET(R) Testing System was permitted to be
utilized in the United States on an investigational basis only, and the Company
was permitted to derive revenue with respect thereto only to recover certain of
its costs. The Company, however, was previously selling PAPNET(R) testing
services for commercial use outside of the United States. The Company has
established three scanning facilities (the "Scanning Centers"), one each in the
United States, The Netherlands and Hong Kong. The Netherlands operation has
scanned slides primarily from customers in Europe while the Hong Kong operation
has scanned slides from Asia and Australia. During the third quarter of 1997,
the Company announced plans to sell PAPNET(R) scanners and related equipment to
laboratories in Europe, and in October 1997 the Company announced the signing of
its first European sales contract. The Company expects to deliver the first
PAPNET-on-Cyte(TM) system in the fourth quarter of 1997. Although the Company
has no active plans to sell scanners in the United States and international
markets other than Europe, it may do so if customers express a strong interest
in the PAPNET-on-Cyte(TM) system and acceptable economic terms can be reached
with the customer. See Note 5 of Notes to Consolidated Financial Statements for
the year ended December 31, 1996 for information regarding the Company's
revenues, net loss and identifiable assets by geographic area.
The Company has incurred net losses since inception through September 30, 1997
of $122,246,000 and has to date generated only limited commercial revenues.
Since the approval of the PAPNET(R) Testing System by the FDA, the Company has
been increasing the scale of its operations to commercial levels in the United
States. Management believes that its existing cash resources will be sufficient
to fund the increase in the scale of the Company's operations and to meet its
cash requirements through 1998, although there can be no assurance in this
regard. The Company's past results of operations reflect its developmental or
early commercial stage and are not necessarily indicative of the results from
operations that may be expected as the scale of its operations increases.
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RESULTS OF OPERATIONS
The Company's results of operations have fluctuated significantly from year to
year and quarter to quarter, principally due to variations in the level of
expenditures relating to its clinical trials, research projects, marketing and
sales programs and international expansion. The Company's results of operations
are expected to continue to fluctuate significantly and may continue to result
in substantial losses.
From inception through September 30, 1997, the Company has experienced negative
gross margins due to the significant under-utilization of its scanning and
manufacturing operations which occurred as a result of the plan to establish
these capabilities prior to FDA approval and then-expected market demand.
Improvement in the Company's future gross margins will be dependent upon the
level of commercial acceptance of the PAPNET(R) Testing System.
The Company's costs and expenses have increased substantially during 1997,
compared to 1996, as the Company continues to expand its commercial operations,
including its marketing, sales, manufacturing, slide processing, research and
administrative activities, to meet the anticipated increase in market demand for
PAPNET(R) testing, expand its clinical claims and develop enhancements to the
PAPNET(R) Testing System and to fund the acquisition and expected losses of the
Company's new operations in Hong Kong, China and Taiwan acquired in June and
August of 1997. General and administrative costs have also increased during 1997
due principally to higher legal fees (primarily related to Company litigation),
and costs associated with the severance of the former CEO and recruitment of his
replacement. The Company anticipates that aggregate costs and expenses will
increase only modestly or decline in 1998 over 1997 because of the Company's
decision to reduce direct-to-consumer advertising and agency related costs, and
to focus sales and marketing efforts on the laboratory customer and opinion
leading clinicians. In addition, the Company believes that the decision to sell
scanners to European laboratories will create a more cost effective selling
process in that market and reduce related slide processing costs. Nevertheless,
total costs and expenses may not decline significantly in 1998 because of
expected increases in manufacturing and slide processing costs, higher clinical
costs as the Company initiates clinical studies for a primary screening
indication in the United States, increased costs associated with the Company's
operation of its Hong Kong, China and Taiwan acquisitions for a full year in
1998 versus a partial year in 1997, uncertainty over the level of costs
associated with ongoing litigation, and higher royalty payments that will
increase proportionate to increases in the Company's revenues in the sales
territories of the Company's territorial licensees ("Licensees").
During the third quarter, the Company focused its efforts on developing more
effective relationships with laboratories in order to be more responsive to the
concerns and needs of the medical marketplace, and to address certain obstacles
which the Company has perceived as hindering its marketing programs. The Company
believes that several programs initiated during the third quarter will add value
in the pathology laboratories,
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both medically and economically, and that laboratories are becoming more
supportive of PAPNET(R) testing. The Company also continued its efforts to build
support among opinion-leading cytopathologists and cytotechnologists. Several
programs announced during the third quarter contributed toward that goal.
First, the Company assembled a distinguished group of physicians into a
pathology advisory board (PAB). The PAB is comprised of independent physicians
who will help direct the Company's efforts in the development of services and
programs that can help laboratory professionals improve patient care. The PAB
held its first meeting in September and will continue to meet periodically
throughout the coming year. The Company expects that the PAB will add value to
the laboratory and to NSI.
Second, the Company launched the PAPNET(R) Access Program, a partnership with
ten academic medical centers to provide free PAPNET(R) testing to indigent
women, and to gather data on the benefits that PAPNET(R) testing can confer to
infrequently screened populations.
Finally, in October the Company announced the publication of its Food and Drug
Administration (FDA) clinical trial in the peer-review journal Human Pathology,
showing PAPNET(R) testing can help laboratories detect cervical cancer more
efficiently and earlier. This publication now brings the total number of
peer-reviewed manuscripts on PAPNET(R) testing in gynecologic cytology to
thirty-six (36) and contributes to the large body of data that makes PAPNET(R)
testing one of the most widely studied and thoroughly reviewed technologies in
cervical cancer screening.
During the third quarter, the Company also initiated new programs to help the
Company communicate more effectively with pathologists at customer labs. NSI
sponsored workshops for pathologists to discuss how PAPNET(R) testing can help
laboratory professionals improve patient care. These programs were designed to
provide pathologists with a better understanding of the clinical and economic
value of integrating PAPNET(R) testing into their laboratories.
The Company also focused its technical efforts for the benefit of the pathology
laboratory customer. The Company has implemented its Laboratory Support Group
(LSG). The LSG has hired cytotechnologists with extensive experience in both
hands-on cytology and in the supervision of cytotechnology teams.
During the month of October, the Company signed a contract with Mercy Medical
Center of Canton, Ohio to rescreen 100% of its Pap smear slides using the
PAPNET(R) Testing System. The Company expects to begin generating revenue from
this contract during the fourth quarter of 1997.
The Company made significant progress in its commitment to seek approval of the
PAPNET(R) Testing System as a primary screening device in the United States, and
is working with the FDA to establish the trial protocol. The Company expects to
complete
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site selection and training in the fourth quarter of 1997, and anticipates that
it will begin screening trial smears during the first quarter of 1998.
Interest expense is expected to increase in the future as the Company borrows to
fund expansion of its manufacturing, slide processing and marketing
capabilities, including the installation of PAPNET(R) Scanning Stations at the
Company's Scanning Centers. It is expected that this increase will continue to
be substantially offset during 1997 by interest income from the investment of
the Company's cash. The Company's interest income has declined in 1997, compared
to 1996, because of the significant use of cash in 1996 and 1997.
The impact of inflation and changing prices on the Company's revenues and costs
has not been significant.
RESULTS FOR THE THIRD QUARTER ENDING SEPTEMBER 30, 1997
Revenues for the third quarter of 1997 were $2,526,000, an increase of 96% from
$1,286,000 during the third quarter of 1996. Of such revenues, $2,387,000
represented per slide charges for the screening of Pap smears, and the balance
of such revenues represented the sale or rental payments for PAPNET(R) Review
Stations. The revenue increase over the third quarter of 1996 was due to a
significant increase in unit volume, higher average unit pricing, including the
pricing impact of the acquisition of the Company's new operations in Hong Kong,
China and Taiwan, and additional revenues from the sale or rental of Review
Stations.
Unit volume during the third quarter of 1997, compared to the third quarter of
1996, increased in both the United States and in international markets and
accounted for approximately 40% of the revenue increase between the periods. For
United States operations (which include Canada and South America), unit volume
increased 93% over the third quarter of 1996. In International markets, unit
volume increased 8% over the third quarter of 1996. Average unit pricing in the
third quarter of 1997 increased by approximately 38% over the third quarter of
1996 due to a higher proportion of slide volume being generated in the United
States and the acquisition of the Company's new operations in Hong Kong, China
and Taiwan. This increase in average unit pricing accounted for approximately
53% of the revenue increase. Finally, the impact of higher revenue from the sale
or rental of review stations accounted for the remaining 7% of the worldwide
revenue increase.
Total costs and expenses for the quarter ended September 30, 1997 were
$12,124,000, an increase of $273,000 over the third quarter of 1996. This
increase was due primarily to an increase in cost of sales and general and
administrative expenses, partially offset by lower sales and marketing expenses.
Sales and marketing expenses declined to $3,962,000 in the third quarter of 1997
from $6,262,000 in the third quarter of 1996, a decrease of $2,300,000. The
decline in sales
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and marketing expenses was due primarily to lower costs for advertising and
agency fees in the United States, consistent with the Company's efforts to
become a laboratory-focused marketing organization. This decline was partially
offset by higher costs for sales and marketing programs in international
markets.
The Company's cost of sales increased to $3,138,000 in the third quarter of
1997, compared to $2,085,000 during the third quarter of 1996, an increase of
$1,053,000. The increase in cost of sales was due primarily to increased royalty
expenses as a result of increases in the Company's revenues in the sales
territories of the Licensees during 1997, the addition of the operating costs
for the laboratory business of New System International Ltd., the Hong Kong
company which was acquired by the Company in June 1997, and the expansion of
slide processing and manufacturing capacity. Slide processing costs increased in
1997, compared to the third quarter of 1996, due to the establishment of the
Company's new 26,500 square foot scanning center in New Jersey in October, 1996
and the additional cost of increased depreciation and other costs at the
Company's three slide processing facilities. Manufacturing costs increased due
to the physical expansion of the Company's manufacturing facility in late 1996
and expansion of manufacturing capacity and related overhead.
The Company's research and development expenses increased to $2,207,000 in the
third quarter 1997, from $1,945,000 in the third quarter of 1996. This increase
was due primarily to the expansion of the product development and medical
organizations of the Company to support expanded clinical claims and indications
and future enhancements of the PAPNET(R) Testing System.
General and administrative expenses were $2,817,000 during the third quarter of
1997 compared to $1,559,000 during the third quarter of 1996. This increase was
due primarily to higher legal expenses (primarily for litigation), increased
recruiting costs associated with the search for a new CEO and severance related
costs for the former CEO.
Interest income for the third quarter ended September 30, 1997 was $816,000
compared to $1,236,000 during the third quarter of 1996. This decrease was due
primarily to the lower level of cash, cash equivalents and short term
investments available to the Company during the third quarter of 1997 as a
result of the Company's continuing losses in 1996 and the first nine months of
1997.
Interest expense during the third quarter of 1997 was $397,000 compared to
$305,000 during the third quarter of 1996. This increase was due to higher
average levels of debt and capital lease obligations, which the Company entered
into in late 1996 and 1997, incurred to finance capital equipment additions,
primarily related to the Company's PAPNET(R) Scanning Stations. The Company
anticipates higher levels of interest expense during the remainder of 1997 and
in 1998 as a result of the increased levels of debt and capital lease
obligations.
-14-
<PAGE>
The Company incurred a net loss during the third quarter of 1997 of $9,244,000,
or $0.30 per share, compared to a net loss of $9,588,000, or $0.33 per share
during the third quarter of 1996. The lower net loss during the third quarter of
1997 was due primarily to the factors discussed above.
RESULTS FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1997
Revenues for the nine month period ending September 30, 1997 were $6,407,000, an
increase of 117% from $2,954,000 during the same period of 1996. This revenue
increase was due to a significant increase in unit volume, higher average unit
pricing, including the pricing impact of the acquisition of new operations in
Hong Kong, China and Taiwan, and additional revenues from the sale or rental of
Review Stations.
Unit volume during the first nine months of 1997, compared to the same period of
1996, increased in all of the Company's major markets including the United
States, Asia, Australia and Europe and accounted for approximately 49% of the
revenue increase. For United States operations (includes Canada and South
America), unit volume increased 123% over the same period of 1996. In
international markets, unit volume increased 27% over 1996. Worldwide average
unit pricing during the first nine months of 1997 increased by approximately 36%
over the same period of 1996 and accounted for approximately 47% of the revenue
increase due primarily to a higher proportion of slide volume being generated in
the United States and the acquisition of the laboratory and marketing operations
in Hong Kong, China and Taiwan. Finally, increased revenue from the sale or
rental of review stations accounted for the remaining 4% of the worldwide
revenue increase.
Total costs and expenses for the period ended September 30, 1997 were
$35,674,000, an increase of $6,191,000 over the same period of 1996. This
increase was due primarily to an increase in general and administrative expenses
(principally related to Company litigation, severance costs for the former CEO
and recruiting fees for his replacement), research and development expenses, and
cost of sales (primarily associated with increased royalty expenses as a result
of increased sales in the territories of the Licensees, and the expansion of
slide processing and manufacturing capacity).
Sales and marketing expenses increased to $14,273,000 during the first nine
months of 1997 from $13,635,000 during the same period of 1996, an increase of
$638,000. The increase in sales and marketing expenses was due primarily to
costs associated with marketing the PAPNET(R) Testing System in the United
States and Europe, including salaries for additional personnel and advertising
and promotion costs of the PAPNET(R) Testing System, and to the acquisition of
new operations in Hong Kong, China and Taiwan in June and August of 1997.
The Company's cost of sales increased to $8,390,000 in 1997, compared to
$5,709,000 during the same period of 1996, an increase of $2,681,000. As was the
case for the quarter, this increase was primarily associated with increased
royalty expenses as a result
-15-
<PAGE>
of increases in the Company's revenues in the sales territories of the Licensees
during 1997, the acquisition of the laboratory business of New System
International Ltd. in June 1997 and the expansion of the Company's slide
processing and manufacturing capacity.
The Company's research and development expenses increased to $6,196,000 in 1997,
from $5,024,000 during the same period of 1996. This increase was due primarily
to the expansion of the product development and medical organizations of the
Company to support expanded clinical claims and indications, and future
enhancements of the PAPNET(R) Testing System.
The Company's general and administrative expenses increased to $6,815,000 during
the first nine months of 1997, compared to $5,115,000 for the same period of
1996. This increase was due primarily to higher legal expenses, primarily for
litigation, increased recruiting costs associated with the search for a new CEO
and severance related costs for the former CEO.
Interest income for the nine month period ended September 30, 1997 was
$2,812,000 compared to $4,044,000 during the same period of 1996. This decrease
was due primarily to the lower level of cash, cash equivalents and short term
investments available to the Company during 1997 as a result of the Company's
continuing losses in 1996 and the first nine months of 1997.
Interest expense during the first nine months of 1997 was $1,213,000 compared to
$789,000 during the same period 1996. As was the case for the third quarter of
1997, this increase was due to higher average levels of debt and capital lease
obligations incurred to finance capital equipment additions.
The Company incurred a net loss during the first nine months of 1997 of
$27,738,000, or $0.90 per share, compared to a net loss of $23,813,000, or $0.82
per share during the same period of 1996. The increased net loss was due to the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since its inception primarily by the
issuance of equity securities, sales of PAPNET(R) Testing System services, funds
received for the territorial license agreements (prior to 1992), interest earned
on cash, cash equivalents and short-term investments and proceeds from notes,
bank loans and equipment leasing arrangements. In addition, the Company has
announced plans to sell PAPNET(R) equipment to laboratories in Europe and has
announced that the first contract with a European customer has been signed. The
Company expects to generate revenues from this contract in the fourth quarter of
1997.
The Company's combined cash and cash equivalents, and short term investments
totaled $52,824,000 at September 30, 1997, a decrease of $30,567,000 from
December 31, 1996. During the first nine months of 1997, the Company used
$25,858,000 for operating
-16-
<PAGE>
activities, $35,812,000 for investing activities, including the purchase of
$30,182,000 of short term investments, while generating $807,000 from financing
activities. In addition, the effect of exchange rate changes on cash was
$114,000, which accounted for the remaining change to the Company's cash
balance.
The primary uses of cash and cash equivalents during the first nine months of
1997 were $27,738,000 (inclusive of $3,827,000 of non-cash items) to finance the
Company's net loss, $30,182,000 to purchase short term investments, $3,874,000
to purchase capital equipment, primarily for the manufacture of PAPNET(R)
Scanning Stations and related equipment to support the expansion of the
Company's scanning capacity, a net amount of $1,156,000 to acquire the Company's
new operations in Hong Kong, China and Taiwan (See Note 3 to Condensed
Consolidated Financial Statements set forth above), a $600,000 non-recourse loan
to the Company's former CEO in connection with his severance agreement (see Note
4 to the Notes to Condensed Consolidated Financial Statements set forth above),
$3,012,000 to repay notes, bank loans and capital lease obligations, and
$1,947,000 for changes in operating assets and liabilities.
The sources of cash and cash equivalents during the first nine months of 1997
were proceeds of $1,690,000 from notes and bank loans, proceeds of $1,669,000
from capital lease financing transactions (sale/leaseback), a reduction in
restricted cash of $181,000 and proceeds of $279,000 from the issuance of common
stock, associated with the exercise of stock options.
The Company anticipates that its use of cash will be substantial for the
foreseeable future. In particular, the Company anticipates that expenditures
during the balance of 1997 and in 1998 will continue to be significant due to
the cost of marketing the PAPNET(R) Testing System in the United States, the
cost of marketing and sales programs in overseas markets, research and
development programs for additional clinical indications and claims, and the
cost of on-going litigation. The Company anticipates that, during 1997, it will
invest approximately $4.0 million for working capital purposes and approximately
$7.0 million for capital expenditures, leasehold improvements and the
acquisition costs of the Company's new operations in Hong Kong, China and
Taiwan. Although funding for capital expenditures is expected to be available
out of the Company's cash resources, management believes that it may be
desirable for the Company to finance certain of such capital expenditures
through additional debt or capital lease obligations.
During 1996 and 1997, the Company entered into loan and equipment lease
agreements with two equipment financing companies to provide the Company with
approximately $11.0 million of lines of credit to finance certain of the
Company's equipment purchases. During 1996 and 1997, the Company borrowed
approximately $8.0 million under the agreements. The Company is required to
maintain certain financial covenants throughout the duration of both the loan
and lease agreements. The agreements stipulate that additional funding can be
denied in the event of a material adverse change in the financial condition,
operation or prospects of the Company. The loan and lease commitments expire on
December 31, 1997. There can be no assurance, however, that the remaining credit
line balance of $3.0 million of these loan and equipment lease agreements, or
any
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<PAGE>
other financings, will ultimately be obtained by the Company or, if
obtained, that the terms thereof will not change or will be reasonable.
The Company anticipates that its current cash and cash equivalents will be
sufficient to enable the Company to meet its future operating requirements
through 1998. The Company does not expect to generate a positive internal cash
flow in the foreseeable future due to continued capital expenditures, working
capital requirements, repayment of debt and capital lease obligations, and
ongoing losses during the next year, including the expected cost of continued
commercialization of the PAPNET(R) Testing System. The Company may need to
arrange additional equity or debt financing for the future operation of its
business. There can be no assurance that such financing can be obtained or, if
it is obtained, that the terms thereof will be reasonable. The Company plans to
invest excess funds in short-term instruments, including money market funds.
On November 5, 1997, the Company announced the appointment of Paul Sohmer, M.D.
as President and Chief Executive Officer of the Company, and the election by the
Board of C. Raymond Larkin, Jr. as the non-executive Chairman of the Board. In
addition, the Company increased the size of the Company's Board to eight (8),
and appointed Dr. Sohmer as a member of the Board. Mark Rutenberg, the founder
of the Company, was appointed non-executive Vice Chairman of the Board. See the
Notes to the Condensed Consolidated Financial Statements Note 4, set forth
above, which describes in detail the foregoing developments.
As previously reported in the Company's Form 10-Q for the period ending June 30,
1997, in an agreement effective as of June 1, 1997, the Company acquired New
System International Ltd., a Hong Kong corporation, for a net purchase price of
$1,564,000 and, in an agreement effective as of August 1, 1997, the Company
acquired the assets of the Taiwan PAPNET(R) distributor, Papnet Far East Ltd.
(Taiwan) through the Company's acquisition subsidiary, New System Ltd., for a
purchase price of $392,000. In addition, the Company and its subsidiary, NSI
Asia Pacific Ltd., entered into agreements with PFEL pursuant to which the
Company received $800,000 for the right of PFEL to receive a royalty of 3% to 4%
based on sales in Hong Kong, China and Taiwan. See the Notes to the Condensed
Consolidated Financial Statements Note 3, set forth above, which describes in
detail the foregoing and related transactions.
To date, the Company has not implemented a program to hedge its foreign currency
risk, but may do so in the future.
As previously reported in the Company's Forms 10-Q for the periods ended March
31, 1997 and June 30, 1997, each respectively filed with the Securities and
Exchange Commission (the "Commission"), the Company is a defendant in a civil
lawsuit brought by Herbst et al., a patent infringement lawsuit filed by
NeoPath, Inc. ("NeoPath"), and a civil lawsuit by Cytyc Corporation. The Company
is the plaintiff in a lawsuit against NeoPath for patent infringement and
additional claims related to unfair business practices, and NeoPath has filed
counter-claims against the Company in such lawsuit
-18-
<PAGE>
seeking damages and injunctive relief for false advertising and unfair
competition. Each of the foregoing lawsuits have been disclosed in the Company's
previous filings with the Commission and no material developments have occurred
since the most recent such filing. The Company believes that an adverse judgment
in any or all of these cases would not have a material adverse effect on the
Company's operations, financial position or cash flows, but there can be no
assurance in this regard.
-19-
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Management's Discussion and Analysis of Financial Condition and Results of
Operation in Part I herein for disclosure concerning legal proceedings, which
information is incorporated herein by reference thereto.
ITEM 2. CHANGES IN SECURITIES.
During the third quarter 1997, the Company completed its obligations to report
information to the Commission with respect to the use of
proceeds of $94,705,000 from the sale of 6,900,000 shares of its Common Stock,
par value $.0001 per share, in its initial public offering, declared effective
on Securities Act registration statement Form S-1 on December 7, 1995 under
Commission file number 33-97722 (the "Offering"). As of the ending date of the
current reporting period, the amount of costs incurred for the Company's
account and deemed as paid-for from proceeds of the sale of its securities,
represent application of all of the Offering proceeds. Such application includes
$12,994,000 for the purchase and installation of machinery and equipment,
$1,564,000 for the acquisition of other businesses, $2,524,000 for working
capital purposes, $71,040,000 for costs and expenses, $2,088,000 for interest
expense, $2,388,000 for payment of leases and $2,107,000 for payment of loans.
With respect to payment for acquisition of other businesses set forth above,
Stephen Ng, M.D., president of NSI Asia Pacific Ltd., a subsidiary of the
Company and a member of the Company's Board of Directors until May 15, 1997, is
also an officer and principal stockholder of Papnet (Far East) Ltd. ("PFEL"),
the seller of New System International Ltd., a Hong Kong corporation, which was
purchased by the Company effective as of June 1, 1997 for the net amount
indicated above.
-20-
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
During the third quarter, the Company acquired the assets of its Taiwan
PAPNET(R) distributor, entered into royalty arrangements related to its
acquisitions in Hong Kong, China and Taiwan, repriced certain employee stock
options, and subsequent to the end of the quarter announced the appointment of a
new President and Chief Executive Officer of the Company and a new Chairman of
the Board. See the Notes to the Condensed Consolidated Financial Statements, set
forth above, which describe in detail the foregoing and related developments.
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<PAGE>
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Number Exhibit
------ -------
<S> <C>
10.32 Form of Employee Replacement Option Agreement, dated July 28, 1997
10.33 Form of Executive Employment Agreement, dated July 1, 1997
10.34 Employment Agreement, between Neuromedical Systems, Inc., and Stephen
K.C. Ng, M.D., dated as of June 1, 1997
10.35 Employment Agreement, between NSI Netherlands B.V. and Henk Snyman,
M.D., dated as of October 8, 1996, as amended July 1, 1997
10.36 Stock Purchase Agreement, dated as of June 1, 1997 among NSI Asia
Pacific Ltd., Papnet (Far East) Ltd. ("PFEL") and the PFEL Stockholders
10.37 Asset Purchase Agreement, dated as of August 1, 1997 among New System
Ltd., Papnet Far East Ltd. (Taiwan), and the stockholders of Papnet Far
East Ltd. (Taiwan)
10.38 License and Management Services Agreement, dated as of August 1, 1997,
between New System Ltd. and Papnet Far East Ltd. (Taiwan)
10.39 Amended and Restated Representation Agreement, dated
September 30, 1997, by and between Neuromedical Systems,
Inc.,and Papnet (Far East) Ltd.
10.40 Sublicense Agreement between NSI Asia Pacific Ltd. and Papnet (Far
East) Ltd., dated September 30, 1997
10.41 Employment Agreement between the Company and Paul Sohmer, dated as of
November 4, 1997
10.42 Option Agreement (A) between the Company and Paul Sohmer, dated as of
November 4, 1997
10.43 Option Agreement (B) between the Company and Paul Sohmer, dated as of
November 4, 1997
10.44 Form of Amendment to Company Stock Option Agreements,
dated September 18, 1997, between the Company and
Employee Participants in the Neuromedical Systems, Inc.
1993 Stock Option Plan (the "Plan") and/or the Plan as
amended and restated on October 25, 1995
11.0 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule
99.1 Cautionary Statement for Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995*
</TABLE>
* Previously filed as an exhibit to the Company's 1996 Annual Report on Form
10-K and incorporated herein by reference thereto.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(b) Reports on Form 8-K during the quarter for which this
report is filed:
July 30, 1997 (Second Quarter 1997 Earnings Report)
SAFE HARBOR STATEMENT
- ---------------------
Forward-looking statements discussed in this Form 10-Q are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Except for the historical information contained herein, the matters discussed
and presented herein are forward-looking statements which reflect the Company's
current views with respect to future events and financial performance, which
include, but are not limited to, statements regarding Company plans and
operations, management assessments and decisions, marketing and promotion
strategy, and discussions of product development and performance. The words
"believe", "expect", "anticipate", "estimate", "project" and similar expressions
identify forward-looking statements, which speak only as of the date hereof.
Investors are cautioned that such forward looking statements involve risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated due to many factors, including but not
limited to, the Company's continuing negative cash flow, reliance on a single
product, competition, dependence on key personnel, the impact on the Company of
its territorial license agreements, dependence on patents and proprietary
technology, government regulation of products and advertising, success of
marketing and sales programs, the impact of third-party reimbursement decisions,
litigation and other risks detailed in the Company's Securities and Exchange
Commission filings, including its 1996 Form 10-K and Exhibit 99.1 attached
thereto. The Company undertakes no obligation to publicly update or revise any
forward-looking statements.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, a duly authorized officer and the Company's principal financial
officer.
NEUROMEDICAL SYSTEMS, INC.
Dated: November 13, 1997 By: /s/ David Duncan, Jr.
---------------------
David Duncan, Jr.
Vice President, Finance and
Administration, Chief Financial
Officer
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<PAGE>
Exhibit 10.32
Form of Employee Replacement Option Agreement
---------------------------------------------
NEUROMEDICAL SYSTEMS, INC.
1993 STOCK OPTION PLAN, AS AMENDED
NONQUALIFIED STOCK OPTION AGREEMENT
REPLACEMENT OPTIONS
THIS AGREEMENT, effective as of the 28th day of July, 1997 (the "Grant
Date"), between Neuromedical Systems, Inc., a Delaware corporation (the
"Company"), and [name of employee] (the "Optionee").
WHEREAS, the Company has adopted the Neuromedical Systems, Inc. 1993
Stock Option Plan, as amended and restated on October 25, 1995 (the "Plan") in
order to provide additional incentive to selected directors, officers, employees
and consultants of the Company and its Subsidiaries; and
WHEREAS, the Company previously granted to the Optionee, effective as
of [prior grant date] certain option rights to purchase all or any part of an
aggregate of [amount of prior grant] whole Shares, subject to the terms and
conditions of an agreement between Optionee and the Company dated as of even
date therewith (the "Old Options" and such agreement governing the terms of
grant and exercise thereof, the "Old Option Agreement").
WHEREAS, as of July 28, 1997 and as authorized by the provisions of
Article 3 of the Plan, the Board of Directors of the Company duly adopted a
resolution authorizing the issuance of replacement options (the "Replacement
Options") to acquire shares of Company common stock, $.0001 par value per share
("Common Stock"), in substitution of outstanding stock options granted on or
after October 1, 1996, as and when such options are surrendered by the holders
thereof, among which are the Old Options; and
WHEREAS, the Optionee desires to surrender Old Options in exchange for
the Replacement Options and the Company and the Optionee hereby wish to
memorialize the terms and conditions applicable to the Replacement Options;
NOW, THEREFORE, the parties hereto agree as follows:
1. Surrender of Old Options and Grant of Replacement Options.
---------------------------------------------------------
1.1 Effective as of the Grant Date and upon (a) surrender by the
Optionee of all right, title and interest in Optionee's Old Options and (b)
termination of any and all rights, obligations and duties of each of the parties
hereto under the terms of Optionee's Old
<PAGE>
Option Agreement and any and all ancillary representations or agreements by the
Company with respect thereto, the Company hereby grants to the Optionee the
right and option (the "Option") to purchase all or any part of an aggregate of
[amount of replacement options] whole Shares subject to, and in accordance with,
the terms and conditions set forth in this Agreement. Each of the parties
hereto agree that foregoing conditions (a) and (b) of this paragraph 1.1 shall
each be duly performed, acknowledged and definitively evidenced by the sole act
of execution of this Agreement.
1.2 The Option is not intended to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.
1.3 This Agreement shall be construed in accordance and
consistent with, and subject to, the terms of the Plan (the provisions of which
are incorporated herein by reference); and, except as otherwise expressly set
forth herein, the capitalized terms used in this Agreement shall have the same
definitions as set forth in the Plan.
2. Purchase Price.
--------------
The price at which the Optionee shall be entitled to purchase Shares
upon the exercise of the Option shall be $4.00 per Share.
3. Duration of Option.
------------------
Subject to the terms and conditions of this Agreement, the Option
shall be exercisable to the extent and in the manner provided herein for a
period of ten (10) years from the Grant Date (the "Exercise Term"); provided,
--------
however, that the Option may be earlier terminated as provided in Section 6
- -------
hereof.
4. Exercisability of Option.
------------------------
Subject to the terms and conditions of this Agreement, the Option
shall be exercisable as follows:
(a) The Option shall become vested and exercisable with respect to 25%
of the aggregate number of Shares covered by the Option as of each of the first,
second, third and fourth anniversaries of the Grant Date, provided,
--------
however, that in the event that the Optionee is terminated by the Company
"without cause" (as defined in the Plan) prior to July 28, 1998, 25% of
Optionee's Option will vest and become exercisable as of such termination date.
(b) Any fractional number of shares resulting from the application of
the percentages set forth above in this Section 4 shall be rounded to the next
higher whole number of Shares.
-2-
<PAGE>
5. Manner of Exercise and Payment.
------------------------------
5.1 Subject to the terms and conditions of this Agreement and
the Plan, the Option may be exercised by delivery of written notice to the
Company, at its principal executive office. Such notice shall state that the
Optionee is electing to exercise the Option and the number of Shares in respect
of which the Option is being exercised and shall be signed by the person or
persons exercising the Option. If requested by the Committee (as defined in the
Plan), such person or persons shall (i) deliver this Agreement to the Secretary
of the Company who shall endorse thereon a notation of such exercise and (ii)
provide satisfactory proof as to the right of such person or persons to exercise
the Option.
5.2 The notice of exercise described in Section 5.1 shall be
accompanied by (x) either (i) payment of the full purchase price for the Shares
in respect of which the Option is being exercised, in cash, by check or, at the
sole discretion of the Committee, by transferring Shares to the Company having a
Fair Market Value on the day preceding the date of exercise equal to the cash
amount for which such Shares are substituted or (ii) subject to the consent of
the Committee, instructions from the Optionee to the Company directing the
Company to deliver a specified number of Shares directly to a designated broker
or dealer pursuant to a cashless exercise election which is made in accordance
with such requirements and procedures as are acceptable to the Committee in its
sole discretion and (y) full payment of all applicable Withholding Taxes (as
defined in Section 11) pursuant to Section 11 hereof
5.3 Upon receipt of the notice of exercise and any payment or
other documentation as may be necessary pursuant to Section 5.2 relating to the
Shares in respect of which the Option is being exercised, the Company shall,
subject to the Plan and this Agreement, take such action as may be necessary to
effect the transfer to the Optionee of the number of Shares as to which such
exercise was effective.
5.4 The Optionee shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to any Shares subject to the
Option until (i) the Option shall have been exercised pursuant to the terms of
this Agreement and the Optionee shall have paid the full purchase price for the
number of Shares in respect of which the Option was exercised, (ii) the Company
shall have issued and delivered the Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company, whereupon the Optionee shall have full voting and other
ownership rights with respect to such Shares.
6. Termination of Employment.
-------------------------
6.1 Death or Disability. In the event the employment of the
-------------------
Optionee is terminated as a result of Disability or death, the Optionee may at
any time within one (1) year after such termination of employment, exercise the
Option to the extent, but only to the extent, that the Option or portion thereof
was exercisable on the date of such termination of employment, after which time
the Option shall terminate in full. In the event of the Optionee's
-3-
<PAGE>
death, the Option shall be exercisable, to the extent provided in the Plan and
this Agreement, by the legatee or legatees under the Optionee's will, or by the
Optionee's personal representatives or distributees and such person or persons
shall be substituted for the Optionee each time the Optionee is referred to
herein.
6.2 Cause. In the event the employment of the Optionee is
-----
terminated for Cause, the Option shall terminate on the date of the Optionee's
termination of employment whether or not exercisable.
6.3 Other Termination of Employment. If the employment of the
-------------------------------
Optionee is terminated for any reason other than Disability, death or Cause
(including the Optionee's ceasing to be employed by a Subsidiary or division of
the Company or any Subsidiary as a result of the sale of such Subsidiary or
division or an interest in such Subsidiary or division), the Optionee may at any
time within three (3) months after such termination of employment, exercise the
Option to the extent, but only to the extent, that the Option or portion thereof
was exercisable on the date of the termination of employment, after which time
the Option shall terminate in full.
7. Nontransferability.
------------------
The Option shall not be transferable other than by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code or by such other means explicitly permitted pursuant to
Rule 16b-3 under the Exchange Act. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee, except in the case of an
Option transferred pursuant to a qualified domestic relations order.
8. No Right to Continued Employment.
--------------------------------
Nothing in this Agreement or the Plan shall be interpreted or
construed to confer upon the Optionee any right with respect to continuance of
employment by the Company or any Subsidiary, nor shall this Agreement or the
Plan interfere in any way with the right of the Company or any Subsidiary to
terminate the Optionee's employment at any time.
9. Adjustments.
-----------
In the event of a Change in Capitalization, the Committee may make
appropriate adjustments to the number and class of Shares or other stock or
securities subject to the Option and the purchase price for such Shares or other
stock or securities. The Committee's adjustment shall be made in accordance
with the provisions of Section 6 of the Plan and shall be final and binding for
all purposes of the Plan and this Agreement.
10. Effect of a Liquidation, Merger or Consolidation.
------------------------------------------------
Upon the effective date of (i) the liquidation or dissolution of the
Company or (ii) a merger or consolidation of the Company (a "Transaction"), the
Option shall continue in
-4-
<PAGE>
effect in accordance with its terms and the Optionee shall be entitled to
receive in respect of each Share subject to the Option, upon exercise of the
Option, the same number and kind of stock, securities, cash, property or other
consideration that each holder of a Share was entitled to receive in the
Transaction in respect of a Share.
11. Withholding of Taxes.
--------------------
The Company shall have the right to deduct from any distribution of
cash to the Optionee an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to the Option. If the Optionee is entitled to
receive Shares upon exercise of the Option, the Optionee shall pay the
Withholding Taxes to the Company in cash prior to the issuance of such Shares.
In satisfaction of the Withholding Taxes, the Optionee may make a written
election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the Shares issuable
to him or her upon exercise of the Option, having an aggregate Fair Market
Value, on the date preceding the date of such issuance, equal to the Withholding
Taxes, provided that if the Optionee may be subject to liability under Section
16(b) of the Exchange Act either (i) (A) the Tax Election is made at least six
(6) months prior to the date the Option is exercised and (B) the Tax Election is
irrevocable with respect to the exercise of all Options which are exercised
prior to the expiration of six (6) months following a revocation of the Tax
Election or (ii) (A) the Optionee makes the Tax Election at least six (6) months
after the Grant Date, (B) the Option is exercised during the ten-day period
beginning on the third business day and ending on the twelfth business day
following the release for publication of the Company's quarterly or annual
statement of sales and earnings (a "Window Period"), and (C) the Tax Election is
made during the Window Period in which the Option is exercised or prior to such
Window Period and subsequent to the immediately preceding Window Period.
12. Optionee Bound by the Plan.
--------------------------
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
13. Modification of Agreement.
-------------------------
This Agreement may be modified, amended, suspended or terminated, and
any terms or conditions may be waived, but only by a written instrument executed
by the parties hereto, provided, however, that the Company may unilaterally
-------- -------
amend this Agreement with respect to the modification of any provision herein so
long as (i) the result of such amendment does not adversely affect Optionee's
rights under this Agreement or the Plan, and (ii) reasonable notice of any such
unilateral amendment is provided to Optionee.
-5-
<PAGE>
14. Severability.
------------
Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
15. Governing Law.
-------------
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without giving
effect to the conflicts of laws principles thereof.
16. Successors in Interest.
----------------------
This Agreement shall inure to the benefit of and be binding upon any
successor to the Company. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee and
all rights granted to the Company under this Agreement shall be final, binding
and conclusive upon the Optionee's heirs, executors, administrators and
successors.
17. Resolution of Disputes.
----------------------
Any dispute or disagreement which may arise under, or as a result of,
or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Committee. Any determination made
hereunder shall be final, binding and conclusive on the Optionee and Company for
all purposes.
18. No Assignment.
-------------
Except as otherwise provided herein, the rights of the Optionee
hereunder may not be assigned or otherwise transferred to any other party.
[Signature Page Follows]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the day and year first set forth above.
NEUROMEDICAL SYSTEMS, INC.
By:
-------------------------------
John B. Henneman, III
Co-CEO, Vice President of Corporate
Development, Secretary and
General Counsel
-----------------------------------
[Name of Optionee]
-7-
<PAGE>
Form of Employee Replacement Option Agreement
Schedule
----------
Pursuant to the General Instructions to Item 601 of Regulation SK of the
Securities Act of 1933, as amended, the Company has filed only the form of the
Company's 1993 Stock Option Plan, as Amended, Nonqualified Stock Option
Agreement for Replacement Options (the "Agreements") because the executed
exemplars of such document are substantially identical in all material respects,
except as to the parties thereto, the amount and date of the prior option grant
and the amount of replacement options granted therein, in each case as set forth
as follows:
<TABLE>
<CAPTION>
Amount
Amount of Replacement
Employee Prior Grant Date Prior Grant Options
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
David Duncan, Jr. February 13, 1997 20,000 16,000
Vice President Finance and
Administration and Chief
Financial Officer
Zeev Hadass, Ph.D. February 13, 1997 20,000 16,000
Vice President, Processing
Operations
John B. Henneman, III February 13, 1997 20,000 16,000
Co-CEO, Vice President of
Corporate Development,
Secretary and General Counsel
James M. Herriman, February 13, 1997 20,000 16,000
Vice President of Product
Development
Uzi Ish-Hurwitz February 13, 1997 35,000 28,000
Co-CEO, Executive
Vice President, Chief of
Technical Operations and
President, Neuromedical
Systems Israel Ltd.
Laurie J. Mango, M.D. February 13, 1997 20,000 16,000
Vice President and
Medical Director
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Amount
Amount of Replacement
Employee Prior Grant Date Prior Grant Options
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Andrew C. Panagy February 13, 1997 20,000 16,000
Vice President, Marketing
and Sales
Howard M. Solomon, M.D. March 1, 1997 35,000 28,000
Vice President Medical
Operations
Mark R. Rutenberg February 13, 1997 70,000 56,000
Chairman
Henk Snyman, M.D. November 7, 1996 and
President, NSI Europe B.V. February 13, 1997 53,330 42,664
Stephen Ng, M.D. June 23, 1997 50,000 40,000
President, NSI Asia Pacific
Ltd.
</TABLE>
-9-
<PAGE>
Exhibit 10.33
FORM OF EXECUTIVE EMPLOYMENT AGREEMENT
--------------------------------------
RESTATED
--------
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, effective as of the 1st day of July, 1997, by and between
NEUROMEDICAL SYSTEMS, INC., a Delaware corporation with principal executive
offices at Two Executive Boulevard, Suffern, New York 10901-4114 ("NSI"), and
[Employee], (the "Employee").
W I T N E S S E T H :
WHEREAS, the Employee is currently employed by NSI as [executive position];
and
WHEREAS, NSI is desirous of continuing to employ the Employee of NSI
in such capacity, and the Employee is desirous of continuing to serve NSI in
such capacity, all upon the terms and subject to the conditions hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment.
----------
NSI agrees to employ the Employee, and the Employee agrees to be employed
by NSI, upon the terms and subject to the conditions of this Agreement.
2. Term.
----
The employment of the Employee by NSI as provided in Section 1 will be for
the period commencing on the date hereof (the "Commencement Date") and ending on
the third anniversary of the Commencement Date (the "Term"); provided, however,
on the third anniversary of the Commencement Date and on each anniversary
thereafter, the Term shall be
<PAGE>
automatically extended for an additional period of one (1) year, unless either
party gives written notice to the other at least ninety (90) days' prior thereto
that the Term of this Agreement shall not be so extended; provided, further,
however, that the Term may be earlier terminated as hereinafter provided.
3. Duties; Best Efforts; Indemnification.
-------------------------------------
The Employee shall serve as [executive position] of NSI, or such other
senior management level position(s) as the Board of Directors of NSI (the
"Board") may from time to time and in its reasonable discretion appoint the
Employee, and shall perform and discharge well and faithfully the duties which
may from time to time be prescribed by the President and Chief Executive Officer
of NSI. The Employee shall devote all of his business time, attention and
energies to the business and affairs of NSI, shall use his best efforts to
advance the best interests of NSI and shall not during the Term be actively
engaged in any other business activity, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage.
Subject to the provisions of NSI's Certificate of Incorporation and Bylaws,
each as amended from time to time, NSI shall indemnify the Employee to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as amended from time to time, for all amounts (including without
limitation, judgments, fines, settlement payments, expenses and attorney's fees)
incurred or paid by the Employee in connection with any action, suit,
investigation or proceeding arising out of or relating to the performance by the
Employee of services for, or the acting by the Employee as an officer or
employee of, NSI, or any other person or enterprise at NSI's request; provided,
however, that NSI shall not be required to indemnify the Employee against any
liability resulting from conduct which is willful, intentional or grossly
negligent. NSI shall use its best efforts to obtain and maintain in full force
and effect during the Term directors' and officers' liability insurance policies
providing full and adequate protection to the Employee for his capacities,
provided that the Board shall have no obligation to purchase such insurance if,
in its opinion, coverage is available only on unreasonable terms.
-2-
<PAGE>
4. Compensation and Benefits.
-------------------------
(a) Base Salary. NSI shall pay to the Employee a base salary (the "Base
-----------
Salary") at a rate of not less than $[annual salary] per annum, payable in
accordance with NSI's ordinary payroll practices as in effect from time to time
during the Term. The Board at least annually will review the Base Salary and
other compensation during the Term with a view to the increase thereof based
upon the Employee's performance, the performance of NSI, inflation, then
prevailing industry salary scales and other relevant factors. Base Salary will
not include any bonus paid to the Employee from time to time.
(b) Out-of-Pocket Expenses. NSI shall promptly pay to the Employee the
----------------------
reasonable expenses incurred by him in the performance of his duties hereunder,
including, without limitation, those incurred in connection with business
related travel or entertainment, or, if such expenses are paid directly by the
Employee, shall promptly reimburse him for such payment, provided that the
Employee properly accounts therefor in accordance with NSI's policy.
(c) Participation in Benefit Plans. The Employee shall be entitled to
------------------------------
participate in or receive benefits under any pension plan, profit sharing plan,
health and accident plan or any other employee benefit plan or arrangement made
available in the future by NSI to its executives and key management employees,
subject to the terms and conditions applicable to executives and key management
generally.
(d) Vacation. The Employee shall be entitled to such paid vacation days
--------
in each calendar year as determined by NSI from time to time, but not less than
three (3) weeks in any calendar year, prorated in any calendar year during which
the Employee is employed hereunder for less than an entire year in accordance
with the number of days in such year during which he is so employed. The
Employee shall also be entitled to all paid holidays given by NSI to its
executives and key management employees. Such vacation and holiday allowance
shall otherwise be subject to the policies and practices of NSI.
5. Termination.
-----------
The Employee's employment hereunder shall be terminated upon the Employee's
death and may be terminated as follows:
-3-
<PAGE>
(a) By NSI for "Cause." A termination for Cause is a termination upon a
finding by NSI that the Employee has: (i) intentionally failed to perform
reasonably assigned duties, (ii) engaged in dishonest or willful misconduct in
the performance of his duties, (iii) engaged in a transaction in connection with
the performance of his duties to the Company or any of its Subsidiaries thereof
which transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit by the Employee, or
(iv) willfully violated any law, rule or regulation in connection with the
performance of his duties (other than traffic violations or similar offenses).
(b) By NSI due to the Employee's "Disability." For purposes of this
Agreement a termination for Disability shall occur: (i) upon the thirtieth
(30th) day after the issuance of a written termination notice to the Employee
in the event that the Employee shall have become so incapacitated as to be
unable to resume, within the ensuing six (6) months, his employment hereunder by
reason of physical or mental illness or injury, or (ii) upon the issuance of a
written termination notice after the Employee has been unable to substantially
perform his duties hereunder for three (3) consecutive months by reason of any
physical or mental illness.
6. Compensation Upon Termination.
-----------------------------
(a) In the event of the termination of the Employee's employment as a
result of the Employee's death, NSI shall (i) pay to the Employee's estate his
Base Salary through the date of his death and (ii) for the shorter of one (1)
year following his death or the balance of the Term (as if such termination had
not occurred) provide continuation coverage to the members of the Employee's
family under all Blue Cross/Blue Shield, major medical and other health,
accident, life or other disability plans and programs in which such family
members participated immediately prior to his death.
(b) In the event of the termination of the Employee's employment by NSI
for Cause or by the Employee for any reason, NSI shall pay to the Employee his
Base Salary through the date of his termination and the Employee's entitlement
to any other compensation or benefits shall be determined in accordance with
NSI's plans, policies and practices as in effect from time to time.
-4-
<PAGE>
(c) In the event of the termination of the Employee's employment by NSI
due to Disability, NSI shall pay to the Employee his Base Salary through the
date of his termination. In addition, for the shorter of one (1) year following
any such termination or the balance of the Term (as if such termination had not
occurred), NSI shall (i) continue to pay the Employee the Base Salary in effect
at the time of such termination less the amount, if any, then payable to the
Employee under any disability benefits of NSI and (ii) provide the Employee
continuation coverage under all Blue Cross/Blue Shield, major medical and other
health, accident, life or other disability plans and programs in which the
Employee participated immediately prior to such termination, to the extent that
such benefits continue to be made available to active employees of NSI.
(d) In the event that the Employee's employment is terminated by NSI
other than for Cause or Disability, for a period of one (1) year following any
such termination, NSI shall (i) continue to pay the Employee the Base Salary in
effect at the time of such termination and (ii) provide continuation coverage
under all Blue Cross/Blue Shield, accident, life or other disability plans and
programs in which the Employee participated immediately prior to such
termination, to the extent such benefits continue to be made available to active
employees of NSI. The continuation of Base Salary provided for in clause (i) of
the preceding sentence shall not be reduced by any compensation or other income
that the Employee may earn from subsequent employment or otherwise.
(e) The continuation coverage under any Blue Cross/Blue Shield, major
medical and other health, accident, life or other disability plans and programs
for the periods provided in Sections 6(a), 6(c) and 6(d) shall be provided (i)
at the expense of NSI and (ii) in satisfaction of NSI's obligation under Section
4980B of the Code (and any similar state law) with respect to the period of time
such benefits are continued hereunder. Notwithstanding anything to the contrary
contained herein, NSI's obligation to provide such continuation coverage under
Sections 6(a), 6(c) or 6(d) shall cease immediately upon the date any covered
individual becomes eligible for similar benefits under the plans or policies of
another employer.
-5-
<PAGE>
(f) This Section 6 sets forth the only obligations of NSI with respect
to the termination of the Employee's employment with NSI and the Employee
acknowledges that upon his termination of employment he shall not be entitled to
any payments or benefits which are not explicitly provided herein.
7. Covenant Regarding Inventions and Copyrights.
--------------------------------------------
The Employee shall disclose promptly to NSI any and all inventions,
discoveries, improvements and patentable or copyrightable works initiated,
conceived or made by him, either alone or in conjunction with others, during the
Term and related to the business or activities of NSI and he assigns all of his
interest therein to NSI or its nominee; whenever requested to do so by NSI, the
Employee shall execute any and all applications, assignments or other
instruments which NSI shall deem necessary to apply for and obtain letters
patent or copyrights of the United States or any foreign country or otherwise
protect NSI's interest therein. These obligations shall continue beyond the
conclusion of the Term with respect to inventions, discoveries, improvements or
copyrightable works initiated, conceived or made by the Employee during the Term
and shall be binding upon the Employee's assigns, executors, administrators and
other legal representatives.
8. Protection of Confidential Information.
--------------------------------------
The Employee acknowledges that he has been and will be provided with
information about, and his employment by NSI will, throughout the Term, bring
him into close contact with, many confidential affairs of NSI and its
subsidiaries, including proprietary information about costs, profits, markets,
sales, products, key personnel, pricing policies, operational methods, technical
processes and other business affairs and methods, plans for future developments
and other information not readily available to the public, all of which are
highly confidential and proprietary and all of which were developed by NSI at
great effort and expense. The Employee further acknowledges that the services
to be performed by him under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character, that the business of NSI will be
conducted throughout the world (the "Territory"), that its products will be
marketed throughout the Territory, that NSI competes and will compete in nearly
all of its
-6-
<PAGE>
business activities with other organizations which are located in nearly any
part of the Territory and that the nature of the relationship of the Employee
with NSI is such that the Employee is capable of competing with NSI from nearly
any location in the Territory. In recognition of the foregoing, the Employee
covenants and agrees during the Term and for a period of five (5) years
thereafter:
(i) That he will keep secret all confidential matters of NSI and not
copy them or disclose them to anyone outside of NSI, either during or after the
Term, except with NSI's prior written consent or, if during the Term, in the
performance of his duties hereunder, the Employee makes a good faith
determination that it is in the best interest of NSI to disclose such matters;
(ii) That he will not make use of any of such confidential matters
for his own purposes or the benefit of anyone other than NSI; and
(iii) That he will deliver promptly to NSI on termination of this
Agreement, or at any time NSI may so request, all confidential memoranda, notes,
records, reports and other confidential documents (and all copies thereof)
relating to the business of NSI, which he may then possess or have under his
control.
9. Restriction on Competition, Interference and Solicitation.
---------------------------------------------------------
In recognition of the considerations described in Section 8 hereof, the
Employee covenants and agrees that, during the Term and for a period of two (2)
years after the termination of his employment hereunder, the Employee will not,
directly or indirectly, (A) enter into the employ of, or render any services to,
any person, firm or corporation engaged in any business competitive with the
business of NSI in any part of the Territory; (B) engage in any such business
for his account; (C) become interested in any such business as an individual,
partner, shareholder, creditor, director, officer, principal, agent, employee,
trustee, consultant advisor, franchisee or in any other relationship or
capacity; or (D) interfere with NSI's relationship with, or endeavor to employ
or entice away from NSI any person, firm, corporation, governmental entity or
other business organization who or which is or was an employee, customer or
supplier of, or maintained a business relationship with, NSI at any time
(whether before, during or after the
-7-
<PAGE>
Term), or which NSI has solicited or prepared to solicit; provided, however,
-------- -------
that nothing contained in this Section 9 shall be deemed to prohibit the
Employee from acquiring or holding, solely for investment, publicly traded
securities of any corporation some of the activities of which are competitive
with the business of NSI so long as such securities do not, in the aggregate,
constitute more than five percent (5%) of any class or series of outstanding
securities of such corporation.
10. Specific Remedies.
-----------------
For purposes of Sections 7, 8 and 9 of this Agreement, references to NSI
shall include all current and future majority-owned subsidiaries of NSI and all
current and future joint ventures in which NSI may from time to time be
involved. It is understood by the Employee and NSI that the covenants contained
in this Section 10 and in Sections 7, 8, and 9 hereof are essential elements of
this Agreement and that, but for the agreement of the Employee to comply with
such covenants, NSI would not have agreed to enter into this Agreement. NSI and
the Employee have independently consulted with their respective counsel and have
been advised concerning the reasonableness and propriety of such covenants with
specific regard to the nature of the business conducted by NSI and the interests
of NSI and its stockholders. The Employee agrees that the covenants of Sections
7, 8, and 9 are reasonable and valid. If the Employee commits a breach of any
of the provisions of Sections 7, 8, or 9, such breach shall be deemed to be
grounds for termination for Cause. In addition, the Employee acknowledges that
NSI may have no adequate remedy at law if he violates any of the terms hereof.
The Employee therefore understands and agrees that NSI shall have (i) the right
to have such provisions specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach will cause
irreparable injury to NSI and that money damages will not provide an adequate
remedy to NSI, and (ii) the right to require the Employee to account for and pay
over to NSI all compensation, profits, monies, accruals, increments and other
benefits (collectively, the "Benefits") derived or received by the Employee as a
result of any transaction constituting a willful breach of any of the provisions
of Sections 7, 8, or 9 and the Employee hereby agrees to account for and pay
over such Benefits to NSI.
-8-
<PAGE>
11. Independence, Severability and Non-Exclusivity.
----------------------------------------------
Each of the rights enumerated in Section 10 hereof shall be independent of
the others and shall be in addition to and not in lieu of any other rights and
remedies available to NSI at law or in equity. If any of the covenants
contained in Sections 7, 8, or 9, or any part of any of them, is hereafter
construed or adjudicated to be invalid or unenforceable, the same shall not
affect the remainder of the covenant or covenants or rights or remedies which
shall be given full effect without regard to the invalid portions. The parties
intend to and do hereby confer jurisdiction to enforce the covenants contained
in Sections 7, 8, or 9 and the remedies enumerated in Section 10 upon the
federal and state courts of New York sitting in New York County. If any of the
covenants contained in Sections 7, 8, or 9 is held to be invalid or
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall have
the power to reduce the duration and/or area of such provision and in its
reduced form said provision shall then be enforceable. No such holding of
invalidity or unenforceability in one jurisdiction shall bar or in any way
affect NSI's right to the relief provided in Section 10 or otherwise in the
courts of any other state or jurisdiction within the geographical scope of such
covenants as to breaches of such covenants in such other respective states of
jurisdictions, such covenants being, for this purpose, severable into diverse
and independent covenants.
12. Disputes.
--------
If NSI or the Employee shall dispute any termination of the Employee's
employment hereunder or if a dispute concerning any payment hereunder shall
exist:
(a) either party shall have the right (but not the obligation), in
addition to all other rights and remedies provided by law, to compel arbitration
of the dispute in the City of New York under the rules of the American
Arbitration Association by giving written notice of arbitration to the other
party within thirty (30) days after notice of such dispute has been received by
the party to whom notice has been given; and
(b) if such dispute (whether or not submitted to arbitration pursuant to
Section 12(a) hereof) results in a determination that (i) NSI did not have the
right to terminate the
-9-
<PAGE>
Employee's employment under the provisions of this Agreement or (ii) the
position taken by the Employee concerning payments to the Employee is correct,
NSI shall promptly pay, or if theretofore paid by the Employee, shall promptly
reimburse the Employee for, all costs and expenses (including attorney's fees)
reasonably incurred by the Employee in connection with such dispute.
13. Successors; Binding Agreement.
-----------------------------
In the event of a future disposition by NSI (whether direct or indirect, by
sale of assets or stock, merger, consolidation or otherwise) of all or
substantially all of its business and/or assets in a transaction to which the
Employee consents, NSI will require any successor, by agreement in form and
substance satisfactory to the Employee, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that NSI would be
required to perform if no such disposition had taken place.
This Agreement and all rights of the Employee hereunder shall inure to the
benefit of, and be enforceable by, the Employee's personal or legal
representatives, executors, administrators, administrators c.t.a., successors,
heirs, distributees, devisees and legatees. Unless otherwise provided herein,
any amounts payable hereunder after the Employee's death shall be paid in
accordance with the terms of this Agreement to the Employee's estate.
14. Notices.
-------
All notices, consents or other communications required or permitted to be
given by any party hereunder shall be in writing (including telecopy or other
similar writing) and shall be given by personal delivery, certified or
registered mail, postage prepaid, or telecopy (or other similar writing) as
follows:
To NSI:
Attn: General Counsel
Two Executive Boulevard
Suffern, New York, 10901-4414
-10-
<PAGE>
To the Employee:
C/O Neuromedical Systems, Inc.
Two Executive Boulevard
Suffern, New York, 10901-4414
or at such other address or telecopy number (or other similar number) as either
party may from time to time specify to the other. Any notice, consent or other
communication required or permitted to be given hereunder shall be deemed to
have been given on the date of mailing, personal delivery or telecopy or other
similar means thereof (provided the appropriate answer back is received) and
shall be conclusively presumed to have been received on the second business day
following the date of mailing or, in the case of personal delivery or telecopy
or other similar means, the day of delivery thereof, except that a change of
address shall not be effective until actually received.
15. Modifications and Waivers.
-------------------------
No term, provision or condition of this Agreement may be modified or
discharged unless such modification or discharge is authorized by the Board of
Directors of NSI and is agreed to in writing and signed by the Employee. No
waiver by either party hereto of any breach by the other party hereto of any
term, provision or condition of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
16. Entire Agreement.
----------------
This Agreement constitutes the entire understanding between the parties
hereto relating to the subject matter hereof, superseding all negotiations,
prior discussions, preliminary agreements and agreements relating to the subject
matter hereof made prior to the date hereof.
17. Law Governing.
-------------
Except as otherwise explicitly noted, this Agreement shall be governed by
and construed in accordance with the laws of the State of New York (without
giving effect to conflicts of law).
-11-
<PAGE>
18. Invalidity.
----------
Except as otherwise specified herein, the invalidity or unenforceability of
any term or terms of this Agreement shall not invalidate, make unenforceable or
otherwise affect any other term of this Agreement which shall remain in full
force and effect.
19. Headings.
--------
The headings contained in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.
20. Execution and Counterparts.
--------------------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together will constitute one and
the same instrument.
[Signature Page Follows]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year set forth above.
NEUROMEDICAL SYSTEMS, INC.
By:
---------------------------------------
Name: John B. Henneman, III
Title: Co-CEO, Vice President of
Corporate Development, Secretary
and General Counsel
------------------------------------------
[Employee]
-13-
<PAGE>
Schedule
-----------
Pursuant to the General Instructions to Item 601 of Regulation SK of the
Securities Act of 1933, as amended, the Company has filed only the form of the
Company's Executive Employment Agreements (the, "Agreements") entered into by
certain of the Company's employees, because the executed exemplars of such
document are substantially identical in all material respects, except as to the
parties thereto, executive position, compensation, and certain additional and
substituted terms, in each case as set forth as follows:
<TABLE>
<CAPTION>
Employee and Annual
Executive Position Compensation Additional Terms
- ----------------------------------------------------------------------------------------
<S> <C> <C>
David Duncan, Jr. $ 151,000 New Agreement amends prior employment
Vice President Finance and agreement in all respects.
Administration and Chief
Financial Officer
Zeev Hadass, Ph.D. $ 151,000 None
Vice President, Processing
Operations
John B. Henneman, III $ 151,000 None
Co-CEO, Vice President of
Corporate Development,
Secretary and General Counsel
James M. Herriman, $ 151,000 None
Vice President of Product
Development
Uzi Ish-Hurwitz $174,000.00 Substitute provisions re employment in Israel:
Co-CEO, Executive Vice a. Managers Insurance (Company contribution
President, Chief of 13-1/3% of gross salary);
Technical Operations and b. Sick leave per Company's Israeli
President, Neuromedical subsidiary policy;
Systems Israel Ltd. c. Disability Insurance (Company
contribution of 2-1/2% of gross salary);
d. Keren Hishtalmut Fund (Company
contribution of 7-1/2% of gross salary);
e. Telephone Reimbursement;
f. Company Car;
g. Company contributions subject to
adjustment per changes in law and/or custom;
h. Non-Duplication of Benefits.
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Employee and Annual
Executive Position Compensation Additional Terms
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Laurie J. Mango, M.D. $151,000 None
Vice President and Medical
Director
Andrew C. Panagy $151,000 None
Vice President, Marketing and
Sales
Howard M. Solomon, M.D. $151,000 Reimbursement of Relocation Expenses
Vice President Medical
Operations
</TABLE>
-15-
<PAGE>
Exhibit 10.34
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, effective as of the 1st day of June, 1997, by and between
NEUROMEDICAL SYSTEMS, INC., a Delaware corporation with principal executive
offices at Two Executive Boulevard, Suffern, New York 10901-4114 ("NSI"), and
Stephen K.C. Ng, M.D. (the "Employee").
W I T N E S S E T H :
WHEREAS, the Employee was previously employed as president of Papnet (Far
East) Ltd. ("PFEL"), a Cayman Islands corporation;
WHEREAS, the Employee is currently employed by New System International
Ltd. ("New Sys"), a Hong Kong corporation and former subsidiary of PFEL;
WHEREAS, all of the capital stock of New Sys was acquired from PFEL as of
the date set forth above by NSI Asia Pacific Ltd. ("NSI-APL"), a Cayman Islands
corporation and wholly owned subsidiary of NSI; and
WHEREAS, NSI is desirous to employ the Employee as President of NSI-
APL and its subsidiaries, and the Employee is desirous to serve NSI in such
capacity, all upon the terms and subject to the conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment.
----------
NSI agrees to employ the Employee, and the Employee agrees to be employed
by NSI, upon the terms and subject to the conditions of this Agreement.
2. Term.
----
The employment of the Employee by NSI as provided in Section 1 will be for
the period commencing on the date hereof (the "Commencement Date") and ending
<PAGE>
on the first (1st) anniversary of the Commencement Date (the "Term"); provided,
however, on the first anniversary of the Commencement Date and on each
anniversary thereafter, the Term shall be automatically extended for an
additional period of one (1) year, unless either party gives written notice to
the other at least ninety (90) days prior thereto that the Term of this
Agreement shall not be so extended; provided, further, however, that the Term
may be earlier terminated as hereinafter provided.
3. Duties; Best Efforts; Indemnification.
-------------------------------------
The Employee shall serve as President of NSI-APL, or such other senior
management level position(s) as the Board of Directors of NSI (the "Board") may
from time to time and in its reasonable discretion appoint the Employee, and
shall perform and discharge well and faithfully the duties which may from time
to time be prescribed by the President and Chief Executive Officer of NSI. The
Employee shall devote 90% all of his business time, attention and energies to
the business and affairs of NSI-APL and its subsidiaries, shall use his best
efforts to advance the best interests of NSI-APL and its subsidiaries, and shall
not, except for 10% of his time during the Term which may be devoted to non-
competing consultation activities, be actively engaged in any other business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantage.
Subject to the provisions of NSI's Certificate of Incorporation and Bylaws,
each as amended from time to time, NSI shall indemnify the Employee to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as amended from time to time, for all amounts (including without
limitation, judgments, fines, settlement payments, expenses and attorney's fees)
incurred or paid by the Employee in connection with any action, suit,
investigation or proceeding arising out of or relating to the performance by the
Employee of services for, or the acting by the Employee as an officer or
employee of, NSI, or any other person or enterprise at NSI's request; provided,
however, that NSI shall not be required to indemnify the Employee against any
liability
-2-
<PAGE>
resulting from conduct which is willful, intentional or grossly negligent. NSI
shall use its best efforts to obtain and maintain in full force and effect
during the Term directors' and officers' liability insurance policies providing
full and adequate protection to the Employee for his capacities, provided that
the Board of Directors of NSI (the "Board") shall have no obligation to purchase
such insurance if, in its opinion, coverage is available only on unreasonable
terms.
4. Compensation and Benefits.
-------------------------
(a) Base Salary. NSI shall pay to the Employee a base salary (the "Base
-----------
Salary") at a rate of not less than US$174,000 per annum, payable in twelve (12)
equal monthly installments in arrears and in accordance with NSI's ordinary
payroll practices as in effect from time to time during the Term. The Board at
least annually will review the Base Salary and other compensation during the
Term with a view to the increase thereof based upon the Employee's performance,
the performance of NSI, inflation, then prevailing industry salary scales and
other relevant factors. Base Salary will not include any bonus paid to the
Employee from time to time.
(b) Out-of-Pocket Expenses. NSI shall promptly pay to the Employee the
----------------------
reasonable expenses incurred by him in the performance of his duties hereunder,
including, without limitation, those incurred in connection with business
related travel or entertainment, or, if such expenses are paid directly by the
Employee, shall promptly reimburse him for such payment, provided that the
Employee properly accounts therefor in accordance with NSI's policy.
(c) Participation in Benefit Plans. The Employee shall be entitled to
------------------------------
participate in or receive benefits under any pension plan, profit sharing plan,
health and accident plan or any other employee benefit plan or arrangement made
available in the future by NSI to its executives and key management employees,
subject to the terms and conditions applicable to executives and key management
generally.
-3-
<PAGE>
(d) Vacation. The Employee shall be entitled to such paid vacation days
--------
in each calendar year as determined by NSI from time to time, but not less than
three (3) weeks in any calendar year, prorated in any calendar year during which
the Employee is employed hereunder for less than an entire year in accordance
with the number of days in such year during which he is so employed. The
Employee shall also be entitled to all paid holidays given by NSI to its
executives and key management employees. Such vacation and holiday allowance
shall otherwise be subject to the policies and practices of NSI.
(e) Housing Allowance. NSI shall pay to the Employee an annual housing
-----------------
allowance of US$60,000, payable in twelve equal monthly installments in arrears.
(f) Bonus. NSI shall pay to the Employee an annual bonus equal to the
-----
higher of one (1) month Base Salary or such greater amount granted by the Board
(i.e., a minimum of one (1) month Base Salary is guaranteed as an annual bonus
payment by NSI to the Employee). Such bonus shall be paid at the earlier of
twelve (12) months following the effective date hereof or at the date of grant
of a bonus to Employee by the Board.
(g) Stock Options Grant. Employee shall be eligible to receive stock
-------------------
options for the purchase of NSI Common Stock in accordance with the terms and
conditions of the NSI 1993 Stock Incentive Plan, as amended and restated October
25, 1995, with such additional terms and conditions of the Board as determined
in accordance therewith. The initial stock option grant to Employee following
execution of this Agreement shall be for 40,000 shares of NSI Common Stock,
which shall be exercisable at a purchase price of $4.00 per share and which will
vest over a four (4) year period, becoming exercisable at a rate of 25% per year
as of July 28th of each year (i.e., 25% will become exercisable on July 28, 1998
and an additional 25% each year thereafter until fully vested on July 28, 2001);
the amount of grant eligibility in subsequent years shall be determined by the
Board upon renewal of this Agreement.
-4-
<PAGE>
(h) Taxes. Any and all taxes payable by Employee are the sole
-----
responsibility of the Employee, provided, however, that NSI shall comply with
-------- -------
any and all applicable tax laws with respect to the withholding of amounts from
Employee compensation subject to U.S. federal, state, and local taxes, and any
other jurisdictional taxes with respect to which NSI and/or its subsidiaries
have a legal obligation of compliance.
5. Termination.
-----------
The Employee's employment hereunder shall be terminated upon the Employee's
death and may be terminated as follows:
(a) By NSI for "Cause." A termination for Cause is a termination upon a
finding by NSI that the Employee has (i) intentionally failed to perform
reasonably assigned duties, (ii) engaged in dishonest or willful misconduct in
the performance of his duties, (iii) engaged in a transaction in connection with
the performance of his duties to the Company or any of its Subsidiaries thereof
which transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit by the Employee, or
(iv) willfully violated any law, rule or regulation in connection with the
performance of his duties (other than traffic violations or similar offenses).
(b) By NSI due to the Employee's "Disability." For purposes of this
Agreement a termination for Disability shall occur (i) upon the thirtieth (30th)
day after the issuance of a written termination notice to the Employee in the
event that the Employee shall have become so incapacitated as to be unable to
resume, within the ensuing six (6) months, his employment hereunder by reason of
physical or mental illness or injury, or (ii) upon the issuance of a written
termination notice after the Employee has been unable to substantially perform
his duties hereunder for three (3) consecutive months by reason of any physical
or mental illness.
-5-
<PAGE>
6. Compensation Upon Termination.
-----------------------------
(a) In the event of the termination of the Employee's employment as a
result of the Employee's death, NSI shall (i) pay to the Employee's estate his
Base Salary through the date of his death and (ii) for the shorter of one (1)
year following his death or the balance of the Term (as if such termination had
not occurred) provide continuation coverage to the members of the Employee's
family under all Blue Cross/Blue Shield, major medical and other health,
accident, life or other disability plans and programs in which such family
members participated immediately prior to his death.
(b) In the event of the termination of the Employee's employment by NSI
for Cause or by the Employee for any reason, NSI shall pay to the Employee his
Base Salary through the date of his termination and the Employee's entitlement
to any other compensation or benefits shall be determined in accordance with
NSI's plans, policies and practices as in effect from time to time.
(c) In the event of the termination of the Employee's employment by NSI
due to Disability, NSI shall pay to the Employee his Base Salary through the
date of his termination. In addition, for the shorter of one (1) year following
any such termination or the balance of the Term (as if such termination had not
occurred), NSI shall (i) continue to pay the Employee the Base Salary in effect
at the time of such termination less the amount, if any, then payable to the
Employee under any disability benefits of NSI, and (ii) provide the Employee
continuation coverage under all Blue Cross/Blue Shield, major medical and other
health, accident, life or other disability plans and programs in which the
Employee participated immediately prior to such termination, to the extent that
such benefits continue to be made available to active employees of NSI.
(d) In the event that the Employee's employment is terminated by NSI
other than for Cause or Disability, for a period of one (1) year following any
such termination, NSI shall (i) continue to pay the Employee the Base Salary in
effect at the time of such termination, and (ii) provide continuation coverage
under all Blue
-6-
<PAGE>
Cross/Blue Shield, accident, life or other disability plans and programs in
which the Employee participated immediately prior to such termination, to the
extent such benefits continue to be made available to active employees of NSI.
The continuation of Base Salary provided for in clause (i) of the preceding
sentence shall not be reduced by any compensation or other income that the
Employee may earn from subsequent employment or otherwise.
(e) The continuation coverage under any Blue Cross/Blue Shield, major
medical and other health, accident, life or other disability plans and programs
for the periods provided in Sections 6(a), 6(c) and 6(d) shall be provided (i)
at the expense of NSI, and (ii) in satisfaction of NSI's obligation under
Section 4980B of the Code (and any similar state law) with respect to the period
of time such benefits are continued hereunder. Notwithstanding anything to the
contrary contained herein, NSI's obligation to provide such continuation
coverage under Sections 6(a), 6(c) or 6(d) shall cease immediately upon the date
any covered individual becomes eligible for similar benefits under the plans or
policies of another employer.
(f) This Section 6 sets forth the only obligations of NSI with respect
to the termination of the Employee's employment with NSI and the Employee
acknowledges that upon his termination of employment he shall not be entitled to
any payments or benefits which are not explicitly provided herein.
7. Covenant Regarding Inventions and Copyrights.
--------------------------------------------
The Employee shall disclose promptly to NSI any and all inventions,
discoveries, improvements and patentable or copyrightable works initiated,
conceived or made by him, either alone or in conjunction with others, during the
Term and related to the business or activities of NSI and he assigns all of his
interest therein to NSI or its nominee; whenever requested to do so by NSI, the
Employee shall execute any and all applications, assignments or other
instruments which NSI shall deem necessary to apply for and obtain letters
patent or copyrights of the United States or any foreign country or
-7-
<PAGE>
otherwise protect NSI's interest therein. These obligations shall continue
beyond the conclusion of the Term with respect to inventions, discoveries,
improvements or copyrightable works initiated, conceived or made by the Employee
during the Term and shall be binding upon the Employee's assigns, executors,
administrators and other legal representatives.
8. Protection of Confidential Information.
--------------------------------------
The Employee acknowledges that he has been and will be provided with
information about, and his employment by NSI will, throughout the Term, bring
him into close contact with, many confidential affairs of NSI and its
subsidiaries, including proprietary information about costs, profits, markets,
sales, products, key personnel, pricing policies, operational methods, technical
processes and other business affairs and methods, plans for future developments
and other information not readily available to the public, all of which are
highly confidential and proprietary and all of which were developed by NSI at
great effort and expense. The Employee further acknowledges that the services
to be performed by him under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character, that the business of NSI will be
conducted throughout the world (the "Territory"), that its products will be
marketed throughout the Territory, that NSI competes and will compete in nearly
all of its business activities with other organizations which are located in
nearly any part of the Territory and that the nature of the relationship of the
Employee with NSI is such that the Employee is capable of competing with NSI
from nearly any location in the Territory. In recognition of the foregoing, the
Employee covenants and agrees during the Term and for a period of five (5) years
thereafter:
(i) That he will keep secret all confidential matters of NSI and not
copy them or disclose them to anyone outside of NSI, either during or after the
Term, except with NSI's prior written consent or, if during the Term, in the
performance of his
-8-
<PAGE>
duties hereunder, the Employee makes a good faith determination that it is in
the best interest of NSI to disclose such matters;
(ii) That he will not make use of any of such confidential matters for
his own purposes or the benefit of anyone other than NSI; and
(iii) That he will deliver promptly to NSI on termination of this
Agreement, or at any time NSI may so request, all confidential memoranda, notes,
records, reports and other confidential documents (and all copies thereof)
relating to the business of NSI, which he may then possess or have under his
control.
9. Restriction on Competition, Interference and Solicitation.
---------------------------------------------------------
In recognition of the considerations described in Section 8 hereof, the
Employee covenants and agrees that, during the Term and for a period of two (2)
years after the termination of his employment hereunder, the Employee will not,
directly or indirectly; (A) enter into the employ of, or render any services to,
any person, firm or corporation engaged in any business competitive with the
business of NSI in any part of the Territory; (B) engage in any such business
for his account; (C) become interested in any such business as an individual,
partner, shareholder, creditor, director, officer, principal, agent, employee,
trustee, consultant advisor, franchisee or in any other relationship or
capacity; or (D) interfere with NSI's relationship with, or endeavor to employ
or entice away from NSI any person, firm, corporation, governmental entity or
other business organization who or which is or was an employee, customer or
supplier of, or maintained a business relationship with, NSI at any time
(whether before, during or after the Term), or which NSI has solicited or
prepared to solicit; provided, however, that nothing contained in this Section 9
-------- -------
shall be deemed to prohibit the Employee from acquiring or holding, solely for
investment, publicly traded securities of any corporation some of the activities
of which are competitive with the business of NSI so long as such securities do
not, in the aggregate, constitute more than five percent (5%) of any class or
series of outstanding securities of such corporation.
-9-
<PAGE>
10. Specific Remedies.
-----------------
For purposes of Sections 7, 8 and 9 of this Agreement, references to NSI
shall include all current and future majority-owned subsidiaries of NSI and all
current and future joint ventures in which NSI may from time to time be
involved. It is understood by the Employee and NSI that the covenants contained
in this Section 10 and in Sections 7, 8, and 9 hereof are essential elements of
this Agreement and that, but for the agreement of the Employee to comply with
such covenants, NSI would not have agreed to enter into this Agreement. NSI and
the Employee have independently consulted with their respective counsel and have
been advised concerning the reasonableness and propriety of such covenants with
specific regard to the nature of the business conducted by NSI and the interests
of NSI and its stockholders. The Employee agrees that the covenants of Sections
7, 8, and 9 are reasonable and valid. If the Employee commits a breach of any
of the provisions of Sections 7, 8, or 9, such breach shall be deemed to be
grounds for termination for Cause. In addition, the Employee acknowledges that
NSI may have no adequate remedy at law if he violates any of the terms hereof.
The Employee therefore understands and agrees that NSI shall have: (i) the right
to have such provisions specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach will cause
irreparable injury to NSI and that money damages will not provide an adequate
remedy to NSI, and (ii) the right to require the Employee to account for and pay
over to NSI all compensation, profits, monies, accruals, increments and other
benefits (collectively, the "Benefits") derived or received by the Employee as a
result of any transaction constituting a willful breach of any of the provisions
of Sections 7, 8, or 9 and the Employee hereby agrees to account for and pay
over such Benefits to NSI.
11. Independence, Severability and Non-Exclusivity.
----------------------------------------------
Each of the rights enumerated in Section 10 hereof shall be independent of
the others and shall be in addition to and not in lieu of any other rights and
remedies
-10-
<PAGE>
available to NSI at law or in equity. If any of the covenants contained in
Sections 7, 8, or 9, or any part of any of them, is hereafter construed or
adjudicated to be invalid or unenforceable, the same shall not affect the
remainder of the covenant or covenants or rights or remedies which shall be
given full effect without regard to the invalid portions. The parties intend to
and do hereby confer jurisdiction to enforce the covenants contained in Sections
7, 8, or 9 and the remedies enumerated in Section 10 upon the federal and state
courts of New York sitting in New York County. If any of the covenants
contained in Sections 7, 8, or 9 is held to be invalid or unenforceable because
of the duration of such provision or the area covered thereby, the parties agree
that the court making such determination shall have the power to reduce the
duration and/or area of such provision and in its reduced form said provision
shall then be enforceable. No such holding of invalidity or unenforceability in
one jurisdiction shall bar or in any way affect NSI's right to the relief
provided in Section 10 or otherwise in the courts of any other state or
jurisdiction within the geographical scope of such covenants as to breaches of
such covenants in such other respective states of jurisdictions, such covenants
being, for this purpose, severable into diverse and independent covenants.
12. Disputes.
--------
If NSI or the Employee shall dispute any termination of the Employee's
employment hereunder or if a dispute concerning any payment hereunder shall
exist:
(a) either party shall have the right (but not the obligation), in
addition to all other rights and remedies provided by law, to compel arbitration
of the dispute in the City of New York under the rules of the American
Arbitration Association by giving written notice of arbitration to the other
party within thirty (30) days after notice of such dispute has been received by
the party to whom notice has been given; and
(b) if such dispute (whether or not submitted to arbitration pursuant
to Section 12(a) hereof) results in a determination that: (i) NSI did not have
the right to terminate the Employee's employment under the provisions of this
Agreement, or (ii) the
-11-
<PAGE>
position taken by the Employee concerning payments to the Employee is correct,
NSI shall promptly pay, or if theretofore paid by the Employee, shall promptly
reimburse the Employee for, all costs and expenses (including attorney's fees)
reasonably incurred by the Employee in connection with such dispute.
13. Successors; Binding Agreement.
-----------------------------
In the event of a future disposition by NSI (whether direct or indirect, by
sale of assets or stock, merger, consolidation or otherwise) of all or
substantially all of its business and/or assets in a transaction to which the
Employee consents, NSI will require any successor, by agreement in form and
substance satisfactory to the Employee, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that NSI would be
required to perform if no such disposition had taken place.
This Agreement and all rights of the Employee hereunder shall inure to the
benefit of, and be enforceable by, the Employee's personal or legal
representatives, executors, administrators, administrators c.t.a., successors,
heirs, distributees, devisees and legatees. Unless otherwise provided herein,
any amounts payable hereunder after the Employee's death shall be paid in
accordance with the terms of this Agreement to the Employee's estate.
14. Notices.
-------
All notices, consents or other communications required or permitted to be
given by any party hereunder shall be in writing (including telecopy or other
similar writing) and shall be given by personal delivery, certified or
registered mail, postage prepaid, or telecopy (or other similar writing) as
follows:
To NSI:
Attn: General Counsel
Two Executive Boulevard
Suffern, New York, 10901-4414
-12-
<PAGE>
To the Employee:
Stephen K.C. Ng, M.D.
C/O NSI (Hong Kong) Ltd.
1/f, 2 Biotechnology Ave.
12 Miles, Tai Po Road
Shatin, N.T. Hong Kong
or at such other address or telecopy number (or other similar number) as either
party may from time to time specify to the other. Any notice, consent or other
communication required or permitted to be given hereunder shall be deemed to
have been given on the date of mailing, personal delivery or telecopy or other
similar means thereof (provided the appropriate answer back is received) and
shall be conclusively presumed to have been received on the second business day
following the date of mailing or, in the case of personal delivery or telecopy
or other similar means, the day of delivery thereof, except that a change of
address shall not be effective until actually received.
15. Modifications and Waivers.
-------------------------
No term, provision or condition of this Agreement may be modified or
discharged unless such modification or discharge is authorized by the Board of
Directors of NSI and is agreed to in writing and signed by the Employee. No
waiver by either party hereto of any breach by the other party hereto of any
term, provision or condition of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
16. Entire Agreement.
----------------
This Agreement constitutes the entire understanding between the parties
hereto relating to the subject matter hereof, superseding all negotiations,
prior discussions, preliminary agreements and agreements relating to the subject
matter hereof made prior to the date hereof.
-13-
<PAGE>
17. Law Governing.
-------------
Except as otherwise explicitly noted, this Agreement shall be governed by
and construed in accordance with the laws of the State of New York (without
giving effect to conflicts of law).
18. Invalidity.
----------
Except as otherwise specified herein, the invalidity or unenforceability of
any term or terms of this Agreement shall not invalidate, make unenforceable or
otherwise affect any other term of this Agreement which shall remain in full
force and effect.
19. Headings.
--------
The headings contained in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.
20. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
[Signature Page Follows]
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year set forth above.
NEUROMEDICAL SYSTEMS, INC.
By: /s/ John B. Henneman, III
Name: John B. Henneman, III
Title: Co-CEO, Vice President of Corporate
Development, Secretary and
General Counsel
/s/ Stephen K.C. Ng, M.D.
Stephen K.C. Ng, M.D.
-15-
<PAGE>
Exhibit 10.35
EMPLOYMENT CONTRACT
THE UNDERSIGNED:
(1) NSI Netherlands B.V., (the "Company") whose registered office is in
Amsterdam, The Netherlands and whose place of business is at Zekeringstraat
39 (1014 BV) for these presents lawfully represented by Mark Rutenberg; and
(2) Henk Snyman (the "Employee") residing at The Hague, The Netherlands.
HEREBY AGREE AS FOLLOWS:
1. Commencement and term of employment
1.1 As of November the Employee shall enter the service of the Company.
1.2 This Agreement has been entered into for an indefinite period of time and
may be period as may be required by law, the term of notice to expire on
the last day of a calendar month. terminated by either party by notice
given in writing observing two (2) months' notice or such longer period as
may be required by law, the term of notice to expire on the last day of as
calendar month. This Agreement shall in any event end on the last day of
the calendar month in which the Employee reaches the pensionable age
applicable to him, without any prior notice of termination being required.
1.3 The first two (2) months of the Employee's employment hereunder shall be a
trial period during which either party may terminate this Agreement with
immediate effect without being required to give any reason and without
incurring any liability for damages to the other party.
2. Position and duties
2.1 In the Company's service hereunder the Employee shall have the position of
President. He shall perform all the work required thereto. The Employee
shall act in his employment in accordance with the general and/or specific
directions and instructions of the Company.
2.2 The Company reserves the right, within the limits of what is reasonable, to
make changes to the Employee's position and to modify the conditions of
employment of the Employee accordingly.
<PAGE>
2.3 The Employee agrees that he shall do and omit anything which a good
Executive ought to do or refrain from doing and the he shall devote all his
energy and skill to the Company and shall promote the Company's interests
to the best of his knowledge and ability.
2.4 The usual working time shall be forty (40) hours per week. The usual
working days are Monday to Friday.
2.5 The Employee's work location shall be in Amsterdam, The Netherlands.
Notwithstanding this the Employee agrees that he shall perform his work at
a different location than the place where the work is normally done and/or
at different days or hours than those which normally apply, unless due to
special circumstances the Employee cannot be required to do so.
3. Salary holiday allowance stock options & sign on bonus
3.1 The Employee shall receive a salary of NLG 250,000 gross per month, payable
in arrears no later than on the last day of every calendar month. At the
end of each calendar year the Company shall decide whether or not to
increase the Employee's salary.
3.2 The Employee shall be entitled to a holiday allowance of 8% of the gross
total salary received by him in the twelve (12) months preceding the month
of payment, that allowance to be paid on the last day of May of every
calendar year. In the event of premature termination of this Agreement the
Employee shall receive a pro rata part of the holiday allowance such as it
has accrued due on the date of termination.
3.3 The Employee shall be entitled to receive 50,000 stock options to purchase
NSI stock at fair market price on the date of grant per the terms &
conditions outlined in Annex A.
3.4 The Employee shall receive a "sign on bonus" of NLG 38,149 "gross" within
thirty (30) days after being employed (assuming employed not later than
November 1996).
4. Business expenses
4.1 As compensation for business telephone charges incurred by the Employee
during his actual work the Employee shall receive every two (2) months the
amount of the telephone bill received by him over that period reduced by
the minimum employee contribution as prescribed by the Dutch Inland Revenue
at that time, if and to the extent that his private use does not exceed the
fiscal maximum prescribed in this context.
-2-
<PAGE>
4.2 Any expenses which the Employee has reasonably incurred in the discharge of
his duties shall be reimbursed to the Employee upon presentation of bills
and proofs of payment. Expense claims are to be presented without thirty
(30) days from the date when the expenses concerned were incurred.
5. Company Car
For the purposes of performing his function the Employee shall be provided
by the Company with a vehicle of a list value of NLG 75,000 maximum ("ex-
VAT"). The Company shall pay all expenses relating to the use of the car,
with the exception of the cost of fuel used on private travel of the
Employee (including holidays) abroad and any tax and social security
contributions levied on account of a company car being provided as part of
an employee's remuneration, which costs, tax and contributions shall be
paid by the Employee.
6. Pension
The Employee and his surviving relations shall have the benefit of the
Companies pension plan. The Company agrees to contribute 12% of the annual
gross salary of the Employee to the individual pension plan and will be
paid once a year at the end of each calendar year.
7. Other insurance
Upon presentation of the bill concerned and of proof of payment the Company
shall reimburse to the Employee a gross amount equivalent to 100% of the
premium of a medical insurance policy to be taken out by him for the
benefit of himself and his family, provided that the gross amount so
contributed by the Company shall not exceed the maximum contribution which
employers are required to pay under the State Health Insurance Fund Act
("Ziekenfondswet").
8. Holidays
For each full calendar year during which his employment hereunder
continues, the Employee shall be entitled to twenty (20) work days' holiday
on full pay; In addition to all Dutch public holidays, to be taken with the
prior approval of the Company. Holidays not taken within two (2) years
after the calendar year during which they have accrued shall be forfeited
without any right of compensation therefore.
9. Illness or disablement
9.1 In the event of the Employee's incapacity to work on account of illness or
disablement the Company shall for a maximum period of twelve months, but
until no later than the date when the Employee's employment hereunder ends
(if that
-3-
<PAGE>
date is the earlier), continue to pay 100% of the salary as specified in
Article 3 of this Agreement, such to deduction of any benefits to be
received by the Employee under the social security laws and/or benefits
under any other relevant insurance taken out by the Company.
9.2 During the period specified in paragraph 9.1 the Company shall continue to
pay the premiums referred to Article (6) and (7) at any rate to the extend
that such premiums are under said Articles to be borne by the Company and
are not on any other account not payable.
9.3 For the purposes of this Article and Articles (4) and (5) periods of
incapacity to work following each other at intervals of less than four
weeks shall be regards as one consecutive period of incapacity to work.
9.4 On pain of forfeiture of his entitlement to continued payment of salary
pursuant to this Article, the Employee must strictly comply with the
guidelines and instructions given by or on behalf of the Company regarding
sick leave and if so requested must co-operate in any medical examination
with regard thereto.
10 Side activities/remuneration from third parties
10.1 During his employment hereunder the Employee shall not be permitted to
perform any paid or unpaid side activities without prior written approval
of the Company.
10.2 The Employee shall not accept any monies or other remuneration from third
parties in connection with his work for the Company and/or the companies
affiliated with the Company.
11. Confidentiality/non-disclosure and Intellectual property rights
11.1 During his employment hereunder as well as after its termination-
irrespective of the manner in which and the reasons for which his
employment maybe terminated-the Employee shall treat as strictly
confidential and not disclose to third parties, whether directly or
indirectly, in any form or manner whatsoever, any information which comes
to his knowledge regarding the business and interest of the Company and/or
the companies affiliated with the Company and/or its customer and other
business relations, all this in the broadest sense, unless the discharge of
his duties as President of the Company requires the disclosure of such
information to third parties on a need-to-know basis.
11.2 In the event that the Employee is suspended and upon termination of his
employment hereunder-irrespective of the manner in which and the reasons
for which his employment may be terminated-the Employee shall at the
Company's first request to that effect surrender to the Company all
property of the Company in his possession as well as all documents which in
any way whatever relate to the
-4-
<PAGE>
Company and/or the companies affiliated with the company and/or its
customer and other business relations, all this in the broadest sense, as
well as all copies of such documents and property.
11.3 All intellectual property rights, including but not limited to copyright
and patent, design and trade mark rights, in any products, work and/or
services developed by the Employee during or in connection with his
employment hereunder shall vest in the Company.
11.4 The Employee hereby, in so far as necessary, assigns to the Company, which
assignment is hereby accepted by the Company, all intellectual property
rights in any products, works and/or services developed (completely or in
part) by the Employee during or in connection with his employment
hereunder. The Employee agrees that where this assignment (or part
thereof) should at any time prove to be legally invalid, he shall at such
time assign said rights-without imposing any condition thereon-to the
Company by a separate deed.
11.5 In respect of the products, works and/or services referred to in this
Article, the Employee hereby waives any and all moral rights as defined in
Section 25 of the Copyright Act.
11.6 The provisions of this Article imply that both during his employment
hereunder and at any time thereafter the Employee shall not be permitted to
commercially exploit or cause others to commercially exploit in whatever
manner and/or to register or cause others to register to any products,
works and/or services developed by him during or in connection with his
employment hereunder.
11.7 The parties agree that the salary of the Employee is deemed to include
compensation for deprivation (if any) of intellectual property rights.
12. Non-competition
For two (2) years after termination of his employment hereunder-
irrespective of the manner in which and the reasons for which his
employment has been terminated-the Employee shall not without prior written
approval of the Company be permitted to do any of the following in or
outside of the Netherlands"
(a) to work for or be involved with, in any manner, whether directly or
indirectly and whether paid or unpaid, any person, organization,
company, or enterprise pursuing activities in competition with or
similar or related to the activities of the Company and/or the
companies affiliated with the Company, or to have or take any interest
in such organization, company or enterprise;
-5-
<PAGE>
(b) to maintain in any manner whatsoever, whether directly or indirectly,
business contacts with any person, organization, company or enterprise
with whom during the last two (2) years preceding the termination of
the Employee's employment the Company
(c) to induce present employees of the Company and/or companies affiliated
with the Company or persons who in the period of two years preceding
the termination of the Employee's employment have been or were
employed by the Company and/or the companies affiliated with the
Company to terminate their employment and/or to hire such present or
former employees.
13. Remedy for breach of contract
13.1 In the event that the Employee commits any breach of Article 10, Article
11 and/or Article 12 he shall forfeit to the Company an immediately payable
penalty of NLG (100,000.00/10,000.00) for each such breach, to be increased
by NLG (2,500/10,000) for each day that any such breach continues, without
prior notice or judicial intervention being required and entirely without
prejudice to the Company's right to demand full compensation for the loss
actually suffered by it and/or to demand specific performance.
13.2 Payment of the penalty referred to in 13.1 shall not release the Employee
from his obligations specified in Articles 10, 11 and 1.
14. Relocation expenses
14.1 The Company agrees to pay for "reasonable moving expenses".
15. Final provisions
15.1 This Agreement shall be governed by and construed in accordance with the
laws of the Netherlands.
15.2 All income tax and social security contributions which an employer must by
law deduct from his employees' salaries and pay to the relevant authorities
shall be so deducted from and paid in respect of all amounts to be paid to
the Employee under this Agreement, unless it follows from the nature of the
payment that it may be made tax-free.
15.3 If at any time it is determined by the Dutch Inland Revenue and/or the
National Insurance Authority that any of the payments to be made to the
Employee under Articles (4) and (5) are (in part) subject to the levy of
income tax and/or social security contributions, the compulsory deductions
shall be made yet and charged to the debit of the Employee. As from such
time the amounts of the relevant
-6-
<PAGE>
future payments under Article (4) and (5) shall be reduced to the level at
which such payments may be made tax-free.
15.4 The foregoing constitutes the entire agreement between the parties and
supersedes all agreements and undertakings previously made and given by and
between the Employee and the (bodies of the) Company and/or companies
affiliated with the Company. Variations in or additions to this Agreement
shall be valid only if recorded in a dated document signed by both parties.
[Signature Page Follows]
-7-
<PAGE>
In witness whereof this Agreement was executed and signed by the parties in
Amsterdam, Netherlands on October 8, 1996.
The Company
By: /s/ Mark Rutenberg
Mark Rutenberg
Title: President
The Employee
/s/ Henk Snyman, M.D.
Henk Snyman, M.D.
-8-
<PAGE>
EMPLOYMENT AGREEMENT AMENDMENT
------------------------------
AMENDMENT, effective as of the 1st day of July, 1997, by and between
NEUROMEDICAL SYSTEMS, INC., a Delaware corporation with principal executive
offices at Two Executive Boulevard, Suffern, New York 10901-4114 (referred to
herein as "NSI" or the "Company"), and Henk Snyman, M.D. (the "Employee").
W I T N E S S E T H :
WHEREAS, NSI Netherlands B.V. is a wholly owned subsidiary of NSI;
WHEREAS, the Employee is currently employed by NSI Netherlands B.V. as
President pursuant to an employment contract between the Employee and NSI
Netherlands B.V., dated October 8, 1996 (the "Existing Agreement");
WHEREAS, NSI is desirous of continuing to employ the Employee of NSI
in such capacity, and the Employee is desirous of continuing to serve NSI in
such capacity, all upon the terms and subject to the conditions hereinafter
provided; and
WHEREAS, NSI, NSI Netherlands B.V. and the Employee desire to amend the
Existing Agreement so as to provide for the addition to the Existing Agreement
of the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound, agree as
follows:
1. Compensation.
------------
NSI shall pay to the Employee a base salary at a rate of not less than
NLG250,000 per annum (Two Hundred Fifty Thousand Netherlands Guilders, referred
to hereinafter as the "Base Salary"), in accordance with NSI's ordinary payroll
practices as in effect from time to time during the term of the Existing
Agreement (the "Term").
-9-
<PAGE>
2. Indemnification.
---------------
Subject to the provisions of NSI's Certificate of Incorporation and Bylaws,
each as amended from time to time, NSI shall indemnify the Employee to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as amended from time to time, for all amounts (including without
limitation, judgments, fines, settlement payments, expenses and attorney's fees)
incurred or paid by the Employee in connection with any action, suit,
investigation or proceeding arising out of or relating to the performance by the
Employee of services for, or the acting by the Employee as an officer or
employee of, NSI, or any other person or enterprise at NSI's request; provided,
however, that NSI shall not be required to indemnify the Employee against any
liability resulting from conduct which is willful, intentional or grossly
negligent. NSI shall use its best efforts to obtain and maintain in full force
and effect during the Term directors' and officers' liability insurance policies
providing full and adequate protection to the Employee for his capacities,
provided that the Board of Directors of NSI shall have no obligation to purchase
such insurance if, in its opinion, coverage is available only on unreasonable
terms.
3. Termination.
-----------
The Employee's employment hereunder shall be terminated upon the Employee's
death and may be terminated as follows:
By NSI for "Cause". A termination for Cause is a termination upon a finding
by NSI that the Employee has (i) intentionally failed to perform reasonably
assigned duties, (ii) engaged in dishonest or willful misconduct in the
performance of his duties, (iii) engaged in a transaction in connection with the
performance of his duties to the Company or any of its Subsidiaries thereof
which transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit by the Employee or (iv)
willfully violated any law, rule or regulation in connection with the
performance of his duties (other than traffic violations or similar offenses).
4. Compensation Upon Termination.
-----------------------------
(a) In the event of the termination of the Employee's employment as a
result of the Employee's death, NSI shall (i) pay to the Employee's estate his
Base Salary through the date of his death and (ii) for the shorter of one (1)
year following his death or the balance of the Term (as if such termination had
not occurred) provide continuation coverage to the members of the Employee's
family under all major medical and other health, accident, life or other
disability plans and programs in which such family members participated
immediately prior to his death.
(b) In the event of the termination of the Employee's employment by NSI
for Cause or by the Employee for any reason, NSI shall pay to the Employee his
Base Salary through the date of his termination and the Employee's entitlement
to any other compensation or benefits shall be determined in accordance with
NSI's plans, policies and practices as in effect from time to time.
(c) In the event that the Employee's employment is terminated by NSI
other than for Cause, for a period of one (1) year following any such
termination, NSI shall (i) continue to pay the Employee the Base Salary in
effect at the time of such termination and (ii) provide continuation coverage
under all accident, life or other disability plans and programs in which the
Employee participated immediately prior to
-10-
<PAGE>
such termination, to the extent such benefits continue to be made available to
active employees of NSI. The continuation of Base Salary provided for in clause
(i) of the preceding sentence shall not be reduced by any compensation or other
income that the Employee may earn from subsequent employment or otherwise.
(d) This Section 3 sets forth the only obligations of NSI with respect
to the termination of the Employee's employment with NSI and the Employee
acknowledges that upon his termination of employment he shall not be entitled to
any payments or benefits which are not explicitly provided in the Existing
Agreement, herein above or as otherwise required by law.
[Signature Page Follows]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year set forth above.
NEUROMEDICAL SYSTEMS, INC.
By: /s/ John B. Henneman, III
-----------------------------------------
Name: John B. Henneman, III
Title: Co-CEO, Vice President of
Corporate Development, Secretary
and General Counsel
NSI NETHERLANDS B.V.
By: Neuromedical Systems, Inc.
By: /s/ John B. Henneman, III
-----------------------------------------
John B. Henneman, III
Co-CEO, Vice President of
Corporate Development,
Secretary and
General Counsel
/s/ Henk Snyman, M.D.
-------------------------------------------
Henk Snyman, M.D.
-12-
<PAGE>
Exhibit 10.36
STOCK PURCHASE AGREEMENT
------------------------
Stock Purchase Agreement dated effective as of June 1, 1997 (this "Agreement"),
by and between NSI Asia Pacific Ltd. a Cayman Islands corporation (the
"Buyer"), and Papnet (Far East) Ltd., a Cayman Islands corporation (the
"Seller") and each of the stockholders of the Seller set forth on the signature
page hereto (collectively the "PFEL Stockholders"). Capitalized terms in this
Agreement shall have the meanings set forth in Section 9 herein.
WHEREAS New System International, Ltd., a Hong Kong corporation (the "Company")
is in the business of providing PAPNET (R) Pap smear testing services in Hong
Kong
WHEREAS the total authorized capital stock of the Company consists of 10,000
ordinary shares of HK$1 par value per share, all of which have been issued and
are fully paid
WHEREAS the Seller beneficially owns all 10,000 issued shares of the Company
(the "Shares") of which 9,999 shares are registered in the name of the Seller
and 1 share is registered in the name of Rose Beauty Ltd. which holds the same
as nominee for the Seller
WHEREAS the Company is indebted to the Seller in the amount of the Loan
WHEREAS the Buyer desires to purchase from the Seller and the Seller desires to
sell to the Buyer the Shares and the Loan on the terms and conditions of this
Agreement
Now, therefore, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained of which the adequacy and sufficiency of such consideration is
expressly acknowledged by the Buyer and the Seller, the parties hereto agree as
follows.
1. BASIC TRANSACTION.
------------------
(a) Purchase and Sale of Shares and Loan.
------------------------------------
On and subject to the terms and conditions of this Agreement, the Buyer agrees
to purchase from the Seller the Shares and the Loan, and the Seller agrees to
deliver and transfer to the Buyer, the Shares and the Loan free and clear of all
claims, liens or encumbrances at the Closing for the consideration specified in
paragraph (c) below in this Section 1.
(b) Effective Time.
--------------
The time of the Closing shall be "the Effective Time".
(c) Purchase Price.
---------------
(i) The amount payable by the Buyer shall be calculated in accordance with the
following: the base value of the Shares and the Loan shall be US$1,409,000 (One
Million Four Hundred
1
<PAGE>
Thousand United States Dollars) (the "Base Purchase Price"), which shall be
adjusted in accordance with the calculations set forth on the pro-forma balance
sheet of the Company as at May 30, 1997 (the "Pro-Forma Closing Accounts")
attached hereto as Exhibit A, to reflect (1) addition to the Base Purchase Price
of amounts equal to operating losses of the Company since December 1, 1996, such
amount not to exceed US$50,000 per month; (2) addition to the Base Purchase
Price of amounts equal to cash balances remaining in the Hong Kong and Beijing
bank accounts of the Seller; (3) deduction from the Base Purchase Price of
Liabilities payable by the Company (excluding the Loan) and (4) addition or
deduction, as the case may be, of the net increase or decrease in the Company's
book value of its Accounts Receivable balance from December 1, 1996 through May
30, 1997. The Base Purchase Price as adjusted in accordance with Exhibit A shall
be referred to hereinafter as the "Adjusted Purchase Price" which shall be
apportioned US$10,000.00 to the Shares and US$1,765,113.00 to the Loan.
(ii) The Buyer shall be entitled to retain a sum equal to the Outstanding
Receivables or US$200,000, whichever is the lesser amount (the "Retention Fund")
as security for the receipt by the Company of the Outstanding Receivables. The
Buyer shall use its best endeavours to recover payment of the Outstanding
Receivables within a 180 day period from Closing. Buyer shall render monthly
statements to Seller as to the payment status of such Outstanding Receivables
and shall with each such statement remit to the Seller any Outstanding
Receivable amounts paid to the Company during the period covered by such
statement. The Buyer shall not be obliged to take further action to recover any
amount not paid within the period of 180 days from the Closing Date and shall be
entitled to apply any remaining balance in the Retention Fund as consideration
for the assignment of the remaining Outstanding Receivables from the Company to
the Seller. The Company shall execute an assignment thereof to the Seller so
that the Seller may take action to recover the same in its own name.
(iii) In the event that the Company's year-end audit discloses that the
Liabilities (excluding the Loan) are found to exceed those stated in the Pro-
Forma Closing Accounts, there shall be a reduction of the Adjusted Purchase
price by the total amount of such excess. The Seller shall promptly deliver to
the Buyer any balance due thereof. If such audit discloses a greater cash
balance and/or a lesser amount of Liabilities payable at Closing than as set
forth in the Pro-Forma Closing Accounts, the Buyer shall promptly remit to the
Seller the difference of any such amounts.
(d) The Closing.
-----------
The closing of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of the Company in Hong Kong upon the execution
of this Agreement, but the rights of the Buyer to the Shares shall be deemed to
have accrued as from 1st June 1997.
(e) Deliveries at the Closing.
-------------------------
At the Closing, (i) the Seller will execute, acknowledge and deliver to the
Buyer the various Exhibits, Schedules, certificates, instruments, and documents
referred to herein, such other instruments of sale, transfer and conveyance
satisfactory to the Buyer as shall be effective for Buyer to take full, valid
and enforceable right, title and ownership interest of the Shares and the Loan
and such other documents that Buyer may reasonably request and (ii) Buyer will
deliver to the Seller the consideration specified in Section 1(c) above.
2
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
--------------------------------------------
The Seller represents and warrants to the Buyer as of the Closing Date, the
following statements are correct and complete in all respects except where
otherwise qualified or as may be set forth in a disclosure schedule arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 2 and attached hereto (each, a "Disclosure Schedule") and the
Seller has no Knowledge that any of the following statements contains a material
misstatement or omission:
(a) Organization and Authorization.
------------------------------
The Company is a corporation duly organized, validly existing, and in good
standing under the laws of Hong Kong. The Company has the full corporate power
and authority to conduct its business as and where such business has been and is
now being conducted.
(b) Authorization of Transaction.
----------------------------
The Seller has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and all related documents and
to perform its obligations hereunder and thereunder. Without limiting the
generality of the foregoing, the board of directors of the Seller have duly
authorized the execution, delivery, and performance of this Agreement by the
Seller. This Agreement constitutes the valid and legally binding obligation of
the Seller, enforceable in accordance with its terms and conditions. The
Company and the Seller have obtained all waivers, consents and approvals, a list
of which appear on the attached Schedule 2(b), which are required or necessary
for the consummation of all aspects of this transaction.
(c) Noncontravention.
-----------------
The execution and the delivery of this Agreement and any related documents, and
the consummation of the transactions contemplated hereby and thereby, and all
waivers, consents and permits obtained in connection herewith and therewith,
will not materially (i) violate any organizational, governmental or contractual
obligation of the Seller or the Company or (ii) conflict with, result in a
breach of, constitute a default under any agreement or other arrangement to
which the Seller or the Company is a party or by which any of them is bound.
(d) Title to Assets and Good Repair.
--------------------------------
The Company owns or is otherwise legally entitled to the use and possession of
the Assets, free and clear of any Security Interest other than those listed on
Schedule 2(d) attached hereto and, with respect to tangible assets, the Assets
are in good working order and repair, ordinary wear and tear excepted.
(e) Joint Ventures and Operating Units.
-----------------------------------
The Company has no subsidiary companies. There are no Partnerships or Joint
Ventures in effect as of Closing Date as between the Company and any third party
Persons. CompuScreen has all licenses, permits and authorizations necessary to
carry on in Hong Kong the business in which it is engaged. The Company's
representative offices in the People's Republic of China have all requisite
licenses, permits and authorizations necessary for such representative offices.
3
<PAGE>
(f) Financial Statements and Receivables.
-------------------------------------
Attached hereto as Schedule 2(f) are the following financial statements of the
Company:
(i) Audited Financial Statements for the period ended February 28, 1997,
including: Auditors' Report, Profits and Loss account, balance sheet and notes
to financial statements, audited by E&Y, referred to herein as the "Most Recent
Financial Statements"; (ii) Audited Financial Statements for the fiscal years
ended September 30, 1995 and 1996 including: Auditors' Report, Profit and Loss
account, balance sheet and notes to financial statements, audited by Y.L. Fung &
Company, referred to herein as the "Most Recent Fiscal Year End"; and (iii) A
Proforma Balance Sheet of the Company as of May 30, 1997, Proforma Profit and
Loss account for the Month of May, Unaudited Financial Statements for the period
March 1, 1997, through April 30, 1997, referred to herein as the "unaudited
interim financial statements for the period up to the Closing Date". The
documents referred to in the foregoing clauses (i), (ii) and (iii) of this
paragraph (f) are collectively referred to hereinafter as the "Financial
Statements".
The Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistence basis throughout the periods
covered thereby, present fairly the financial condition of the Company as of
such dates. The results of operations of the Company for such periods are
consistent with the books and records of the Company. All material notes and
accounts receivable of the Company are reflected properly on their respective
books and records, are valid receivables subject to no setoffs or counterclaims,
are current and collectable in accordance with their terms at their recorded
amounts.
The Financial Statements including the unaudited interim financial statements
for the period up to the Closing Date fairly present the information purported
to be included therein. Such Financial Statements were prepared from the books
and records of the Company in conformity with generally accepted accounting
principles, in each case applied on the same basis unless otherwise indicated in
the notes thereto, and reflect all adjustments necessary for a fair presentation
of the interim financial statements. All material transactions have been
properly recorded in the accounting records underlying these financial
statements.
There have been no significant changes in the internal control structure or
manner in which transactions are recorded, classified, and summarized in the
preparation of the interim financial information from internal control structure
and accounting systems in effect during the preceding period up to the Closing
Date.
There have been no significant changes in the capital accounts, long-term debt,
or net current assets (or liabilities) from the Most Recent Financial Statements
date up to the Closing Date.
No events or transactions have occurred since February 28, 1997, that would have
a material effect on the interim financial statements up to the Closing Date
that are such of significance in relation to the Company's affairs to require
mention in a note to the audited financial statements in order to make them not
misleading regarding the financial position, results of operation, or cash flows
of the Company.
4
<PAGE>
To the knowledge of Seller, all accounts receivable as of Closing Date are fully
collectable. In accordance with the terms and conditions set forth under
Section one herein with respect to the Adjusted Purchase Price, Seller
undertakes to indemnify the Buyer for all Outstanding Receivables which are not
collected within 180 days from the Closing Date.
(g) Legal Compliance.
----------------
The Company has (i) complied and is in compliance with all applicable laws and
regulations in Hong Kong, and (ii) no Material Adverse Consequences are known,
filed or commenced against the Company with respect to any failure so to comply,
unless singly or in the aggregate noncompliance would not have Material Adverse
Consequences for the Company.
(h) Tax Matters.
-----------
The Company has filed all Tax Returns that it was required to file in Hong Kong.
All such Tax Returns were correct and complete in all material respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) in Hong Kong
have been paid. The Company is not currently the beneficiary of any extension
of time within which to file any Tax Return. No Company director or officer (or
employee responsible for Tax matters) of the Company expects any authority to
assess any additional Taxes for any period for which Tax Returns have been
filed. Except as set forth on Disclosure Schedule 2(h), there is no audit,
dispute or claim concerning any Tax Liability of any of the Company and there is
no Basis for any such action. The Company has delivered to the Buyer materially
correct and complete copies of all income Tax Returns filed by the Company
since December 31, 1994. The Company has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency. The Company has not entered into any tax sharing or
similar agreements.
(i) Business Operation and Preservation.
-----------------------------------
Since September 30, 1996, the Company has operated its business in good faith in
the Ordinary Course of Business; the Company has not engaged in any practice,
taken any action, or entered into any transaction outside the Ordinary Course of
Business.
(j) Real Property.
-------------
(i) Disclosure Schedule 2(j) lists all real property that any of the Company
owns.
(ii) Disclosure Schedule 2(j) lists and describes briefly all real property
leased or subleased to the Company (including the duration of each such lease).
The Company has delivered to the Buyer materially correct and complete copies of
the leases and subleases listed in Disclosure Schedule 2(j). With respect to
each lease and sublease listed in Disclosure Schedule 2(j): (a) the lease or
sublease is legal, valid, binding, enforceable, and in full force and effect;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (c) all facilities
leased or subleased thereunder have received all waivers, consents and approvals
of any third parties or governmental authorities (including licenses and
permits), as the case may be, required in connection with the operation thereof;
(d) all such facilities have been operated and maintained in accordance with
applicable laws, rules, and regulations in all material respects; and
5
<PAGE>
(e) no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the lease agreement.
(k) Intellectual Property.
---------------------
(i) The Company owns or has the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property reasonably necessary for the
operation of the businesses of the Company as presently conducted;
(ii) The Company does not know of any Person who has, interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties.
(l) Contracts.
----------
Disclosure Schedule 2(l) lists all material contracts, agreements and other
understandings to which any of the Company is a party (including oral
agreements). The Company has delivered to the Buyer a materially correct and
complete copy of each written agreement listed in Disclosure Schedule 2(l)
(each, as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Disclosure Schedule 2(l). In
all material respects, each such agreement:
(a) is legal, valid, binding, enforceable, and in full force and effect;
(b) will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the transactions
contemplated hereby;
(c) no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and
(d) all waivers, consents and approvals of any third parties or governmental
authorities have been obtained (including any licenses and permits required
directly or indirectly in connection therewith) with respect to any such
agreements.
(m) Insurance.
----------
Disclosure Schedule 2(m) briefly describes each material insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety or similar arrangements) to which the
Company is a party, a named insured, or otherwise the beneficiary of coverage at
any time since inception. With respect to the material aspects of each such
insurance policy: (a) the policy is legal, valid, binding, enforceable, and in
full force and effect; (b) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (c) the Company is not
in breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (d) all waivers, consents
and approvals of any third parties and/or governmental authorities have been
obtained (including any licenses and permits required directly or indirectly in
connection therewith) with respect to the transfer and assumption of any such
insurance. Disclosure Schedule 2(m) describes any self-insurance arrangements
affecting the Company.
6
<PAGE>
(n) Litigation.
-----------
Disclosure Schedule 2(n) sets forth each instance in which any of the Company
is subject to any material outstanding injunction, judgment, order, decree,
ruling, or charge or (ii) is a party or, to the Knowledge of the Company, is
threatened to be made a party to any material action, suit, proceeding, hearing,
or investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
(o) Employees and Employee Benefits.
-------------------------------
Disclosure Schedule 2(o) sets forth the name of each employee, consultant, agent
or representative of the Company and the principal place of business of such
person. Disclosure Schedule 2(o) lists each material employee non-cash
compensation plan, retirement plan, material fringe benefit plan or similar
program, other than ordinary cash compensation, that the Company maintains or
to which the Company contributes.
(p) Environment, Health, and Safety.
-------------------------------
Except as set forth on Disclosure Schedule 2(p), (i) the Company has materially
complied with all Environmental, Health, and Safety Laws, and such has no
Knowledge or Basis for Knowledge that any material action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed, commenced or is threatened against the Company alleging any failure so to
comply.
(q) Capitalization, Stock Ownership and Records
-------------------------------------------
The authorized capital stock of the Company consists of 10,000 ordinary shares
of HK$1 par value per share, all of which have been issued and are fully paid
up. The Company's corporate minutes, books and records are complete and correct
in all material respects and have been maintained in accordance with good
business practice and all applicable material laws, regulations and other legal
requirements. Prior to the execution and delivery of this Agreement, the
Company has made available to Buyer all of these books and records and all other
documents relating to the business of the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE BUYER.
-------------------------------------------------
The Buyer represents and warrants to the Company that the statements contained
in this Section 3 are correct and complete in all respects as of the Closing
Date except where qualified otherwise and the Buyer has no Knowledge that any of
the following statements contains a material misstatement or omission:
(a) Organization of the Buyer.
-------------------------
The Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation.
(b) Authorization of Transaction.
----------------------------
The Buyer has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and all related documents and
to perform its obligations hereunder
7
<PAGE>
and thereunder. Without limiting the generality of the foregoing, the board of
directors of the Buyer have duly authorized the execution, delivery, and
performance of this Agreement by the Buyer.
(c) Noncontravention.
-----------------
The execution and the delivery of this Agreement, and the consummation of the
transactions contemplated hereby, and all consents and permits obtained in
connection herewith and therewith, will not materially (i) violate any
organizational, governmental or contractual obligation of the Buyer (ii)
conflict with, result in a breach of, constitute a default under any agreement
or other arrangement to which the Buyer is a party or by which it is bound or
to which any of its assets is subject or (iii) or result in Material Adverse
Consequences with respect to the Buyer .
4. CONDITIONS TO OBLIGATION TO CLOSE.
-------------------------------------
(a) Conditions to Obligation of the Buyer.
---------------------------------------
The obligation of the Buyer to consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties of Section 2 above shall be true,
correct and complete in all respects, except where otherwise qualified or as may
be set forth in a Disclosure Schedule attached hereto and none of such
statements or disclosures shall contain a material misstatement or omission as
of the Closing Date;
(ii) The Seller shall have performed and complied with all of their covenants
hereunder through the Closing;
(iii) the Seller shall have procured any and all material third party or
governmental consents or authorizations required to consummate the transactions
contemplated herein;
(iv) no material action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any jurisdiction
against the Company;
(v) The individuals listed on the attached Schedule A shall have entered into
Employment Agreements and each of the same shall be in effect simultaneously at
the Closing;
(vi) the Company shall have paid any and all of its outstanding Liabilities
except for the Loan and the accounts payable and accrued expenses recorded under
Current Liabilities in the Closing Accounts;
(vii) the Company shall have delivered to Buyer an officer's certificate in
the form of Exhibit X attached hereto;
(iix) the Seller shall have delivered such other documents as the Buyer may
reasonably request on or prior to the Closing Date to consummate the Closing of
this Agreement and the transactions contemplated herein including termination of
the management services agreement between the Buyer and PFEL.
(b) Conditions to Obligation of the Company.
---------------------------------------
The obligation of the Seller to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
8
<PAGE>
(i) the representations and warranties set forth in Section 3 above shall be
true, correct and complete in all respects, except where otherwise qualified and
none of such statements or disclosures shall contain a material misstatement or
omission as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) the Buyer shall deliver the Purchase Price; and
(iv) the Buyer shall deliver such other documents as the Company may
reasonably request on or prior to the Closing Date to consummate the Closing of
this Agreement and the transactions contemplated herein.
5. REPRESENTATIONS AND WARRANTIES OF THE PFEL STOCKHOLDERS
------------------------------------------------------------
Each PFEL Stockholder warrants to the Buyer individually, not jointly, that as
of Closing Date:
(a) The PFEL Stockholder is not aware of any legal Liability of the Company
that has not been disclosed in writing to the Buyer.
(b) Where a PFEL Stockholder has acted in an executive capacity on behalf of
the Company, he has not, except in the Ordinary Course of Business, taken
any action to create any legal Liability on behalf of the Company.
(c) Where a PFEL Stockholder has not acted in an executive capacity on behalf
of the Company, he has not taken any action to create any legal Liability
on behalf of the Company.
(d) If the PFEL Stockholder is a corporation, the PFEL Stockholder is duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(e) In the event that any PFEL Stockholder breaches any of its representations,
warranties or covenants contained in this Agreement, such PFEL Stockholder
individually, not jointly, such that one PFEL Stockholder agrees to
indemnify hold harmless and defend the Buyer from and against the entirety
of any Material Adverse Consequences the Buyer may suffer so long as
provided the Buyer makes a written claim for indemnification against such
PFEL Stockholder and such Material Adverse Consequences arise during the
survival period of this Agreement, resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach),
provided, however, that such PFEL Stockholder shall not be liable for a
breach of the warranty set forth in Section 5(a) herein except where there
has been fraud or deliberate concealment on his part.
(f) The PFEL Stockholder has full power and authority (including, if the PFEL
Stockholder is a corporation, full corporate power and authority) to
execute and deliver this Agreement and all related documents and to perform
his or her obligations hereunder and thereunder. Without limiting the
generality of the foregoing, for each PFEL Stockholder that is a
corporation, the board of directors and the stockholders of such
corporation have duly authorized the execution, delivery, and performance
of this Agreement and such PFEL Stockholder has obtained all waivers,
consents and approvals in respect of its corporate capacity which are
required or necessary for the consummation of this transaction. This
Agreement constitutes the valid and legally binding obligation of the PFEL
Stockholder, enforceable in accordance with its terms and conditions.
(g) The execution and the delivery of this Agreement and any related documents
by the PFEL Stockholder, the performance by the PFEL Stockholder of his or
her obligations hereunder and thereunder, the consummation of the
transactions contemplated hereby and thereby, and all
9
<PAGE>
consents and permits obtained in connection herewith and therewith, will
not materially (i) violate any organizational, governmental or contractual
obligation or (ii) conflict with, result in a breach of, constitute a
default under, result in Material Adverse Consequences under any agreement
or other arrangement to which any of such Persons is a party or by which it
is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets); Each PFEL
Stockholder has obtained any and all waivers, consents or approvals
required by any third parties or governmental authorities with respect to
PFEL Stockholder's obligations under this Agreement and any related
agreement executed by PFEL Stockholder.
6. POST-CLOSING COVENANTS.
------------------------
The Company and each PFEL Stockholder agrees as follows with respect to the
period following the Closing.
(a) General.
--------
In case at any time after the Closing any further action is reasonably necessary
or desirable to carry out the purposes of this Agreement and the transactions
contemplated herein, as determined in Buyer's reasonable discretion, the Seller
will take such further action (including the execution and delivery of such
further instruments and documents), all at the sole cost and expense of the
Buyer (unless the Buyer is entitled to indemnification as set forth below),
including contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or similar circumstance.
(b) Transition.
------------
The Seller and each PFEL Stockholder will not solicit or take any action that is
designed or intended to have the effect of discouraging any employee lessor,
licensor, customer, supplier, or other business associate of any of the Company
from maintaining the same business relationships with the Company after the
Closing as it maintained with the Company prior to the Closing.
(c) Confidentiality.
----------------
The Seller and each PFEL Stockholder will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly at Closing to the
Buyer all tangible embodiments and all digital media copies of the Confidential
Information which are in its, his or her possession.
(d) Covenant Not to Compete.
-----------------------
Except as provided in an Employment Agreement with Buyer, for a period of three
years from and after the Closing Date, each PFEL Stockholder and the Seller
will not engage directly or indirectly including managing, financing,
consulting, owning or being in the employment of any business of automated or
semi automated cytological testing (other than as a client of any company which
is an Affiliate of the Buyer), provided, however, that (i) ownership of less
than 5% of the outstanding stock of any publicly traded corporation and/or (ii)
ownership of any amount of stock of Neuromedical Systems, Inc., or any or its
Subsidiaries, shall in either case be deemed not to be engaged by reason thereof
in any of the business above described. If the final
10
<PAGE>
judgment of a court of competent jurisdiction declares that any term or
provision of this paragraph is invalid or unenforceable, the Parties agree that
the court making the determination of invalidity or unenforceability shall have
the power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this provision shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
7. INDEMNIFICATION.
---------------
(a) Survival.
---------
All of the representations and warranties of the Buyer, the Company, the Seller
and the PFEL Stockholders contained in this Agreement shall survive the Closing
and continue in full force and effect for a period of three (3) years
thereafter.
(b) Indemnification of Buyer.
------------------------
In the event the Seller breaches any of its representations, warranties, and
covenants contained in this Agreement provided that the Buyer makes a written
claim for indemnification against the Seller, then the Seller agrees to
indemnify hold harmless and defend the Buyer from and against the entirety of
any Material Adverse Consequences the Buyer may suffer so long as such Material
Adverse Consequences arise during the survival period of this Agreement,
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach); provided, however, that the Indemnification
provided for herein shall be limited to the Purchase Price hereof, except the
indemnity shall not be so limited in the case of any (x) fraud, (y) Material
Adverse Consequences resulting from, arising out of, relating to, in the nature
of, or caused by any disclosure set forth on a Disclosure Schedule which
qualifies any of the representations and warranties of the Seller.
(c) Indemnification of PFEL Stockholders.
------------------------------------
In the event the Buyer breaches any of its representations, warranties, and
covenants contained in this Agreement, provided that the Seller makes a written
claim for indemnification against the Buyer, then the Buyer agrees to indemnify
the Seller from and against the entirety of any Material Adverse Consequences
the Seller may suffer through and after the date of the claim for
indemnification (including any Material Adverse Consequences the Seller may
suffer so long as such Material Adverse Consequences arise during the survival
period of this Agreement) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach), provided, however,
that the indemnification provided for herein shall be limited to the Purchase
Price hereof.
(d) Representation.
---------------
(i) If any third party shall notify any of Buyer, the Seller or any PFEL
Stockholder (each, an "Indemnified Party") with respect to any matter (a
"Third Party Claim") which may give rise to a claim for indemnification
against any other Party (the "Indemnifying Party"), then the
11
<PAGE>
Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the Indemnified
Party in notifying any Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then solely to the extent)
the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the Indemnified
Party against the Third Party Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party so long as (A) the Indemnifying Party
notifies the Indemnified Party in writing within 15 days after notice of
the Third Party Claim; and (B) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief.
(iii) So long as the Indemnifying Party is conducting the defence of the Third
Party Claim (A) the Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defence of the Third Party Claim, (B)
the Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably), and
(C) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld
unreasonably).
8. MISCELLANEOUS.
-------------
(a) No Third Party Beneficiaries.
----------------------------
This Agreement shall not confer any rights or remedies upon any Person other
than the Parties and their respective successors and permitted assigns.
(b) Entire Agreement.
----------------
This Agreement (including the Exhibits, Schedules and other documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(c) Succession and Assignment.
-------------------------
This Agreement shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other Party; provided,
however, that without such written approval the Buyer may (i) assign any or all
of its rights and interest hereunder to one or more Persons and (ii) designate
one or more Persons to perform its obligations hereunder.
(d) Execution and Counterparts.
--------------------------
This Agreement may be executed via facsimile in one or more counterparts, each
of which shall be deemed an original but all of which together will constitute
one and the same instrument, provided that actual execution exemplars of each
such facsimile signature must be forwarded and delivered to the other Parties no
later than ten (10) days following the Closing.
12
<PAGE>
(e) Headings.
--------
The Section headings contained in this Agreement are inserted for convenience
only and shall not affect in any way the meaning or interpretation of this
Agreement.
(f) Notices.
-------
All notices, requests, demands, claims, and other communications hereunder will
be in writing. Any notice, request, demand, claim, or other communication
hereunder shall be deemed duly given if (and then two business days after) it is
sent by registered or certified mail, return receipt requested, postage prepaid,
and addressed to the intended recipient as set forth below:
If to the Buyer:
NSI Asia Pacific Ltd.
C/O Neuromedical Systems, Inc.
Two Executive Blvd.,
Suffern, NY 10901
U.S.A.
With a copy to:
NEUROMEDICAL SYSTEMS, INC.
Two Executive Boulevard
Suffern, NY 10901;
Attention: John B. Henneman, III
Facsimile: (914) 368-4068
If to the PFEL:
Papnet (Far East) Ltd.
2nd Floor, Zephyr House,
Mary Street, PO Box 709.
George Town, Cayman Islands
If to Rose Beauty:
Rose Beauty Ltd.
PO Box 659,
Road Town
Tortola,
British Virgin Islands
13
<PAGE>
If to the PFEL Stockholders:
Dr. Stephen Ng, M.D. Madam Marie Foo
18 La Costa, 18 La Costa,
Apt.3B Apt. 3B
Discovery Bay Discovery Bay
Hong Kong Hong Kong
Dr. Vincent Leung, M.D. Rose Beauty Ltd.
Room 207, Sino Centre. PO Box 659, Road Town,
582 Nathan Road Tortola, British Virgin Islands
Kowloon
Hong Kong
SCM Limited Five Peaks Limited
9B Cindic Tower 820 Swire House
128 Gloucester Road Chater Road
Wanchai Central
Hong Kong Hong Kong
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including facsimile, personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Party notice in the manner herein set forth.
(g) Governing Law and Jurisdiction.
------------------------------
This Agreement shall be governed by and construed in accordance with the
domestic laws of England without giving effect to any choice or conflict of law
provision or rule (whether of England or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than England. Each
of the Parties submits to the jurisdiction of the English courts in any action
or proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court. Each of the Parties waives any defence of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto. Any Party may make service on the other Party by sending or delivering
a copy of the process to the Party to be served at the address and in the manner
provided for the giving of notices in Section 9(f) above.
(h) Amendments and Waivers.
----------------------
No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by the Buyer and the Company. No waiver by any
Party of any default,
14
<PAGE>
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(i) Severability.
------------
Any term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability of
the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction.
(j) Construction.
-------------
The Parties have participated jointly in the negotiation 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 disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement. The word
"including" shall mean including without limitation.
(k) Specific Performance.
--------------------
Each of the Buyer, the Seller and the PFEL Stockholders acknowledges and agrees
that each such Party may be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties, individually, shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of equity or law having jurisdiction over the
Parties and the matter, at law or in equity.
(l) Expenses.
--------
The Parties shall each bear their own costs and expenses incurred in connection
with the transactions contemplated in this Agreement including, without
limitation, the fees and expenses of their counsel and accountants, provided,
however, that Hong Kong stock transfer stamp duties shall be shared equally be
each of PFEL (as agent for the Seller) and the Buyer.
(m) Risk of Loss.
--------------
The risk of loss of the Acquired Assets shall remain with the Company until the
Closing.
(n) Remedies Cumulative.
-------------------
No remedy set forth in this Agreement or otherwise conferred upon or reserved to
any party shall be considered exclusive of any other remedy available hereunder,
at law or in equity to any party, but the same shall be distinct, separate and
cumulative and may be exercised from time to time as often as occasion may arise
or as may be deemed expedient.
(o) Confidential Information and Publicity.
--------------------------------------
No party hereto shall make any public disclosure of the specific terms of this
Agreement, except as required by law. In connection with the negotiation of
this Agreement and the preparation for
15
<PAGE>
the consummation of the transactions contemplated hereby, each of the Parties
acknowledges that certain confidential information relating to such Parties may
be disclosed to another Party. Each Party shall treat such information as
confidential, preserve the confidentiality thereof and not duplicate or use such
information, except as reasonably necessary to discuss the transactions
contemplated herein with attorneys, advisors, consultants, and Affiliates, and
except as required to comply with any law or any provision of this Agreement or
related documents necessary to consummate the transactions contemplated herein.
9. DEFINITIONS.
-----------
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934.
"Assets" means: (i) all of the assets of the Company, including, but not limited
to the Company's (a) representative offices in the Peoples Republic of China;
(b) CompuScreen, (c) real property and fixtures (d) personal property, (e)
Intellectual Property, (f) equipment and real property leases, (g) agreements
-
and contracts, (h) accounts receivable for services rendered (i) claims,
deposits, prepayments, and refunds, (j) approvals, permits, licenses,
registrations, certificates and similar rights obtained from governments and
governmental agencies, and (k) software, data, books, records, ledgers, files,
documents, correspondence, lists (including customer lists), advertising and
promotional materials, studies, reports, and any other printed, written or
digital materials.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the Recitals of this Agreement above except
with respect to Section 8 in which case it shall mean Buyer, its officers,
directors, employees, agents, representatives, stockholders and their respective
successors and assigns.
"Closing Date" has the meaning set forth in Section 1(d).
"Closing Financial Statement" has the meaning set forth in Section 5.
"Closing" has the meaning set forth in Section 1(d).
"Company Share" means any equity ownership share of the Company.
"Company" has the meaning set forth in the Recitals of this Agreement.
"CompuScreen" means the Company's Hong Kong medical diagnostic laboratory doing
business under the name of CompuScreen.
16
<PAGE>
"Confidential Information" means any information concerning the businesses and
affairs of the Company that is not already generally available to the public.
"Disclosure Schedule" has the meaning set forth in Section 2.
"Effective Time" has the meaning set forth in Section 1(b).
"Employment Agreements" shall mean the employment agreements entered into by
each of the persons listed on the attached Schedule D.
"Environmental, Health, and Safety Laws" means any one or more laws, statutes,
rules, common law holdings, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder of federal, state, local, and
foreign governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or employee health and
safety.
"Financial Statements" has the meaning set forth in Section 2(f).
"GAAP" means generally accepted accounting principles as in effect from time to
time.
"Indemnified Party" has the meaning set forth in Section 7(d).
"Indemnifying Party" has the meaning set forth in Section 7(d).
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Joint Venture" means any contract, agreement or understanding between one or
more of the Company and any other Persons to undertake, contribute to or engage
in any activity, in either a direct, intermediary or indirect capacity, and
share or allocate as between such parties or Persons any portion of the capital,
financing, labor, material, Intellectual Property, real or personal
17
<PAGE>
property, costs, expenses, profits, Liabilities or losses related either
directly or indirectly to such activity.
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes, royalties or commissions.
"Material Adverse Consequences" means any of one or more of the following which
is subject in amount, singly or in the aggregate, to US$5,000 or more: any
actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court costs and
reasonable attorneys' fees and expenses.
"Most Recent Financial Statements" has the meaning set forth in Section 2(f).
"Most Recent Fiscal Year End" has the meaning set forth in Section 2(f).
"Ordinary Course of Business" means the ordinary course of business consistent
with past day-to-day custom and practice (including with respect to quantity and
frequency) as such business has been conducted during the calendar years of
1995, 1996 and 1997.
"Partnership" means any contract, agreement or understanding between one or more
of the Company and any other Persons to undertake, contribute to or engage in
any plan or activity, in either a direct, intermediary or indirect capacity, and
share or allocate as between such parties or Persons any portion of the capital,
financing, labor, material, Intellectual Property, real or personal property,
costs, expenses, profits, Liabilities or losses related either directly or
indirectly to such plan or activity.
"Party" means, individually, each of the Buyer, the Company and each of the PFEL
Stockholders, and collectively, "Parties" means all of the foregoing.
"Payroll Expenses" means the aggregate of the Company's unpaid payroll expenses
accrued from December 1, 1996 until the Closing Date (such expenses in
accordance with the Financial Statements and the Closing Financial Statement).
"Person" means an individual, partnership, corporation, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political subdivision
thereof).
"PFEL" has the meaning set forth in the Recitals of this Agreement.
18
<PAGE>
"PFEL Stockholder " means any Person who holds any PFEL equity shares.
"Pro-Forma Financial Statement" means a pro-forma balance sheet, statement of
income, changes in stockholder's equity and cash flow of the Company as of March
28, 1997.
"Purchase Price" has the meaning set forth in Section 1(c).
"Retention Fund" has the meaning set forth in Section 1(c).
"Rose Beauty" has the meaning set forth in the Recitals of this Agreement.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Security Interest" means any material mortgage, pledge, claim, lien,
encumbrance, charge, or other security interest.
"Sellers" shall have the meaning set forth in the Recitals of this Agreement.
"Shares" means all issued and outstanding stock of the Company as of the
Closing.
"Subsidiary" means any entity with respect to which a specified Person (or
a Subsidiary thereof) owns 1% or more of the equity ownership thereof or has the
power to vote, by ownership, agreement, understanding or otherwise, or direct
the voting of sufficient securities to elect one or more directors.
"Tax Liability" has the combined meanings of the definitions of "Tax" and
"Liability."
"Tax Return" means any return, declaration, report, claim for refund, or
information return, examination reports, statements of deficiencies assessed
against or agreed to, or any other statement relating to Taxes, any schedule or
attachment to any such item and any amendment thereof.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs, duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, bulk sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
"Third Party Claim" has the meaning set forth in Section 7(d)
10. This Agreement may be executed by the parties on different copies and where
all parties have executed this Agreement such executed copies shall together
constitute a duly executed copy of this Agreement.
[Signature Page Follows]
19
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first written above.
NSI ASIA PACIFIC LTD.
By: /s/ Richard Or
Title: General Manager
PAPNET (FAR EAST) LTD.
By: /s/ Stephen Ng, M.D.
Title: President
[Signatures Continue on the Following Page]
20
<PAGE>
PFEL STOCKHOLDERS with respect to Sections 5, 6 and 7 and such of the
definitions in this Agreement applicable to such Sections:
/s/ Stephen Ng, M.D.
Stephen Ng, M.D.
/s/ Marie Foo
Marie Foo
/s/ Vincent Leung
Vincent Leung
ROSE BEAUTY
By: /s/ Gabriel Yu
Title: Director
SCM LTD.
By: /s/ Dan Souza
Title: President
FIVE PEAKS LTD.
By: /s/ Laurence S. Fong
Title: Director
21
<PAGE>
Exhibit 10.37
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement, dated as of August 1, 1997 ("this Agreement"), by
and between New System Ltd., a Cayman Islands corporation (the "Buyer"), and
Papnet Far East Ltd., a Taiwan corporation (referred to herein as the "Seller")
and each of the stockholders of the Seller set forth on the signature page
hereto (collectively the "Taiwan Stockholders"). Capitalized terms in this
Agreement shall have the meanings set forth in Section 9 herein.
WHEREAS the Seller is in the business of providing PAPNET(R) Testing Services in
Taiwan;
WHEREAS the Buyer desires to purchase the Assets from the Seller and the Seller
desires to sell the Assets to the Buyer on the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained of which the adequacy and sufficiency of such consideration is
expressly acknowledged by the Buyer and the Seller, the parties hereto agree as
follows.
1. BASIC TRANSACTION.
------------------
(a) Purchase and Sale of the Assets.
--------------------------------
On and subject to the terms and conditions of this Agreement, the Buyer
agrees to purchase from the Seller the Assets, and the Seller agrees to
sell, convey, deliver, assign and transfer to the Buyer, the Assets free
and clear of all Encumbrances at the Closing for the consideration
specified in paragraph (c) below in this Section 1.
<PAGE>
(b) Effective Time.
--------------
This Asset Purchase Agreement, when executed by the parties hereto, shall
be effective as of August 1, 1997, and such date shall be the "Effective
Time."
(c) Purchase Price.
--------------
(i) At the Closing, upon the terms and subject to the conditions set forth
herein, as full consideration for the sale, transfer, assignment,
conveyance and delivery of the Assets, Buyer shall pay and deliver to the
Seller US$391,000 (three hundred ninety one thousand United States Dollars,
and referred to herein as the "Adjusted Purchase Price").
(ii) The Seller shall retain all outstanding receivables payable to the
Business up to and including July 31, 1997. Buyer shall be entitled to and
assume ownership of any and all receivables payable to the Business at the
Effective Time.
(d) The Closing.
-----------
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place simultaneously at the offices of the Seller in
Taiwan and the Buyer in the State of New York upon the execution of this
Agreement in counterpart by facsimile, and the actual execution exemplars
of each such facsimile signature shall be immediately therewith forwarded
and delivered to the other Parties hereto by express delivery service.
(e) Deliveries At And Prior to the Closing.
--------------------------------------
At the Closing, (i) the Seller will execute, acknowledge and deliver to the
Buyer the various Exhibits, Schedules, certificates, instruments, and
documents referred to herein, including but not limited to, (1) one or more
bills of sale, in the form attached hereto as Exhibit A, conveying in the
aggregate all of Seller's owned personal property included in the Assets;
(2) a receipt for the delivery from Buyer to Seller of the consideration
required herein in the form attached hereto as Exhibit B; (3) any other
material third party consents required for the valid transfer of the Assets
as contemplated by this Agreement; (4) resolutions adopted by the board of
directors of Seller and resolutions or written consents of the
Stockholders, certified by Seller's corporate secretary (as applicable),
authorizing
-2-
<PAGE>
and approving this Agreement, the ancillary agreements, the other documents
and instruments described herein, and the transactions contemplated hereby
and thereby, and such other documents and certificates of Seller's officers
as Buyer may reasonably request to establish satisfaction of closing
conditions or otherwise; and (5) such other instruments and documents as
shall be reasonably requested by Buyer to vest in Buyer title in and to the
Assets in accordance with the provisions hereof, such other instruments of
sale, transfer and conveyance satisfactory to the Buyer as shall be
effective for Buyer to take full, valid and enforceable right, title and
ownership interest of the Assets and such other documents that Buyer may
reasonably request, provided, however, that copies of all of the foregoing
-------- -------
documents shall have been delivered in advance to Buyer for a reasonable
period of time to allow for inspection thereof prior to Closing; and (ii)
Buyer will deliver to the Seller the consideration specified in Section
1(c) above in accordance with the wire transfer instructions provided to
Buyer by Seller.
(f) Assumption of Liabilities.
--------------------------
On and subject to the terms and conditions of this Agreement, the Buyer
shall not assume any Liabilities of Seller with respect to the Business
which have been recorded, accrued, or otherwise incurred on or prior to the
Effective Time.
(g) Excluded Liabilities.
---------------------
Buyer shall not assume, or otherwise be responsible for, any Liabilities or
obligations of Seller, whether actual or contingent, matured or unmatured,
liquidated or unliquidated, or known or unknown, arising out of occurrences
prior to the Effective Time ("Excluded Liabilities"). Seller hereby
acknowledges that it is retaining all Excluded Liabilities and Seller shall
pay, discharge and perform all Excluded Liabilities promptly when due.
(h) The Parties agree to allocate the Adjusted Purchase Price (and all other
capitalizable costs) among the Assets for all purposes (including financial
accounting and tax purposes) in accordance with the allocation schedule
attached hereto as Schedule C.
-3-
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
--------------------------------------------
The Seller represents and warrants to the Buyer as of the Closing Date, the
following statements are correct, true and complete in all respects except where
otherwise qualified or as may be set forth in a disclosure schedule arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 2 and attached hereto (each, a "Disclosure Schedule") and the
Seller has no Knowledge that any of the following statements contains a material
misstatement or omission:
(a) Organization and Authorization.
------------------------------
The Seller is a corporation duly organized, validly existing, and in
good standing under the laws of Taiwan. The Seller has the full
corporate power and authority to conduct its Business as and where
such Business has been and is now being
[Agreement Continues on the Following Page]
-4-
<PAGE>
conducted. Copies of the charter and organizational documents
heretofore delivered to Buyer are accurate and complete as of the date
hereof.
(b) Authorization of Transaction.
----------------------------
The Seller has full power and authority (including full corporate
power and authority) to execute and deliver this Agreement and all
related documents and to perform its obligations hereunder and
thereunder. Without limiting the generality of the foregoing, the
board of directors of the Seller have duly authorized the execution,
delivery, and performance of this Agreement by the Seller as set forth
in the resolutions attached hereto. This Agreement constitutes the
valid and legally binding obligation of the Seller, enforceable in
accordance with its terms and conditions. The Seller has obtained all
waivers, consents and approvals, a list of which appear on the
attached Schedule 2(b), which are required or necessary for the
consummation of all aspects of this transaction.
(c) Noncontravention.
-----------------
The execution and the delivery of this Agreement and any related
documents, and the consummation of the transactions contemplated
hereby and thereby, and all waivers, consents and permits obtained in
connection herewith and therewith, will not materially (i) violate any
charter, organizational, governmental or contractual document or
obligation of the Seller, (ii) conflict with, result in a breach of,
constitute a default under, or result in the termination, or
accelerate the performance required by, or create any Encumbrance
upon, any of the Assets, under the terms, conditions, or provisions of
any agreement or other arrangement to which the Seller is a party or
by which it is bound or which it is subject to, or (iii) result in
Material Adverse Consequences with respect to any of the Assets. No
consent or approval of, notice to, or filing with any governmental
authority is required to be made by Seller to permit Seller to sell
the Assets to Buyer and no consent of a notice to any person or entity
is required for the assignment or sublease of any Contract or Lease to
Buyer.
-5-
<PAGE>
(d) Title to Assets and Good Repair.
--------------------------------
The Seller owns or is otherwise legally entitled to the use and
possession of the Assets, free and clear of any Encumbrance other
than those listed on Schedule 2(d) attached hereto and, with respect
to tangible assets, the Assets are in good working order and repair,
ordinary wear and tear excepted.
(e) Joint Ventures and Operating Units.
-----------------------------------
The Seller has no subsidiary companies. There are no Partnerships or
Joint Ventures in effect as of Closing Date as between the Seller and
any third party Persons.
(f) Financial Statements and Receivables
------------------------------------
Attached hereto as Schedule 2(f) are the following financial
statements (collectively, the "Financial Statements"): (i) audited and
unaudited balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal years
ended from inception of the Business to July 31, 1997 (the fiscal year
ended December 31, 1996 referred to herein as the "Most Recent Fiscal
Year End") for the Seller; and (ii) unaudited balance sheets and
statements of income, changes in stockholders' equity, and cash flow
as of and for the month ended July 31, 1997 (the "Most Recent
Financial Statements") for the Seller. The Financial Statements and
the Closing Financial Statement (including the notes thereto on each)
have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly the
financial condition of the Seller as of such dates and the results of
operations of the Seller for such periods, are correct and complete,
and are consistent with the books and records of the Seller (which
books and records are correct and complete). All material notes and
accounts receivable of the Seller are reflected properly on their
respective books and records, are valid receivables subject to no
material setoffs or counterclaims, are current and collectible, and
will be collected in accordance with their terms at their recorded
amounts, subject only to the
-6-
<PAGE>
reserve for bad debts set forth on the face of the Most Recent
Financial Statements as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the
Seller.
(g) Legal Compliance.
----------------
The Seller has (i) complied and is in compliance with all applicable
laws and regulations in Taiwan, (ii) no Material Adverse Consequences
are known, filed or commenced against the Seller with respect to any
failure so to comply, unless singly or in the aggregate noncompliance
would not have Material Adverse Consequences for the Seller, and (iii)
Seller has all permits required to conduct the Business as now being
conducted, such permits set forth on Schedule 2(g) hereto.
(h) Tax Matters.
-----------
The Seller has filed all Tax Returns that it was required to file in
Taiwan. All such Tax Returns were correct and complete in all material
respects. All Taxes owed by the Seller (whether or not shown on any
Tax Return) in Taiwan have been paid. The Seller is not currently the
beneficiary of any extension of time within which to file any Tax
Return. No Seller director or officer (or employee responsible for
Tax matters) of the Seller expects any authority to assess any
additional Taxes for any period for which Tax Returns have been filed.
Except as set forth on Disclosure Schedule 2(h), there is no audit,
dispute or claim concerning any Tax Liability of any of the Seller and
there is no Basis for any such action. The Seller has delivered to
the Buyer materially correct and complete copies of all income Tax
Returns filed by the Seller since inception. The Seller has not
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency. The
Seller has not entered into any tax sharing or similar agreements.
-7-
<PAGE>
(i) Business Operation and Preservation.
-----------------------------------
The Assets constitute all of the assets used in the Ordinary Course of
Business of the Seller. Since December 1, 1996, the Seller has
operated its Business in good faith in the Ordinary Course of
Business; the Seller has not engaged in any practice, taken any
action, or entered into any transaction outside the Ordinary Course of
Business. The Seller has kept its Business and properties intact,
including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers,
customers, agents, Affiliates, contractors and employees; there has
been no adverse change in the Business relationship of the Seller with
any customer or supplier which is material to the Business or
financial condition of the Seller.
(j) Real Property.
-------------
(i) Disclosure Schedule 2(j) lists all real property that any of the
Seller owns.
(ii) Disclosure Schedule 2(j) lists and describes briefly all real
property leased or subleased to the Seller (including the
duration of each such lease). The Seller has delivered to the
Buyer materially correct and complete copies of the leases and
subleases listed in Disclosure Schedule 2(j). With respect to
each lease and sublease listed in Disclosure Schedule 2(j):
(1) the lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(2) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on
identical terms following the consummation of the
transactions contemplated hereby, including, but not limited
to paragraph (g) of Section 6;
(3) all facilities leased or subleased thereunder have received
all waivers, consents and approvals of any third parties or
governmental authorities (including licenses and permits),
as the case may be, required in connection with the
operation thereof;
(4) all such facilities have been operated and maintained in
accordance
-8-
<PAGE>
with applicable laws, rules, and regulations in all material
respects; and
(5) no party is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or
acceleration, under the lease agreement.
(k) Intellectual Property.
---------------------
(i) The Seller owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property
reasonably necessary for the operation of the Businesses of the
Seller as presently conducted;
(ii) The Seller does not know of any Person who has, interfered with,
infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of third parties.
(l) Contracts.
----------
Disclosure Schedule 2(l) lists all material contracts, agreements and
other understandings to which any of the Seller is a party (including
oral agreements). The Seller has delivered to the Buyer a materially
correct and complete copy of each written agreement listed in
Disclosure Schedule 2(l) (each, as amended to date) and a written
summary setting forth the terms and conditions of each oral agreement
referred to in Disclosure Schedule 2(l). In all material respects,
each such agreement:
(1) is legal, valid, binding, enforceable, and in full force and
effect;
(2) will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(3) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration,
under the agreement; and
-9-
<PAGE>
(4) all waivers, consents and approvals of any third parties or
governmental authorities have been obtained (including any
licenses and permits required directly or indirectly in
connection therewith) with respect to any such agreements.
(m) Insurance.
----------
Disclosure Schedule 2(m) briefly describes each material insurance
policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety or similar
arrangements) to which the Seller is a party, a named insured, or
otherwise the beneficiary of coverage at any time since inception.
With respect to the material aspects of each such insurance policy:
(1) the policy is legal, valid, binding, enforceable, and in full
force and effect;
(2) the policy is assignable and will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated
hereby;
(3) the Seller is not in breach or default (including with respect to
the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy;
(4) all waivers, consents and approvals of any third parties and/or
governmental authorities have been obtained (including any
licenses and permits required directly or indirectly in
connection therewith) with respect to the transfer and assumption
of any such insurance. Disclosure Schedule 2(m) describes any
self-insurance arrangements affecting the Seller;
(5) the policy includes reasonable and customary tail coverage for
similarly situated companies; and
-10-
<PAGE>
(n) Litigation.
-----------
Disclosure Schedule 2(n) sets forth each instance in which any of the
Seller is subject to any material outstanding injunction, judgment,
order, decree, ruling, or charge, or (ii) is a party or, to the
Knowledge of the Seller, is threatened to be made a party to any
material action, suit, proceeding, hearing, or investigation of, in,
or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any
arbitrator.
(o) Employees and Employee Benefits.
-------------------------------
Disclosure Schedule 2(o) sets forth the name of each employee,
consultant, agent or representative of the Seller and the principal
place of business of such person. Disclosure Schedule 2(o) lists each
material employee non-cash compensation plan, retirement plan,
material fringe benefit plan or similar program, other than ordinary
cash compensation, that the Seller maintains or to which the Seller
contributes.
(p) Environment, Health, and Safety.
-------------------------------
Except as set forth on Disclosure Schedule 2(p), (i) the Seller has
materially complied with all Environmental, Health, and Safety Laws,
and such has no Knowledge or Basis for Knowledge that any material
action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed, commenced or is threatened
against the Seller alleging any failure so to comply.
(q) Capitalization, Stock Ownership and Records
-------------------------------------------
The authorized capital stock of the Seller consists of [Chinese
--------
Characters] shares of NT$ [Chinese Characters] par value per share,
----------- --------------------
all of which have been issued and are fully paid up. The Seller's
corporate minutes, books and records are complete and correct in all
material respects, and accurately and fairly reflects the activities
of the Business in reasonable detail, and have been maintained in
accordance with good business practice and all applicable material
laws,
-11-
<PAGE>
regulations and other legal requirements. Prior to the execution and
delivery of this Agreement, the Seller has made available to Buyer all
of these books and records and all other documents relating to the
Business of the Seller.
(r) Undisclosed Liabilities.
------------------------
Other than Excluded Liabilities, Seller has no material liabilities,
obligations or commitments of any nature (whether absolute, accrued,
contingent or otherwise and whether matured or unmatured), including
without limitation Tax liabilities due or to become due, except (a)
liabilities which are reflected and reserved against on the Most
Recent Financial Statement which have not been paid or discharged
since the date thereof, (b) liabilities arising under Contracts,
Leases, letters of credit, purchase orders, licenses, permits,
purchase agreements and other agreements, business arrangements and
commitments described in the Disclosure Schedule (and under those
Contracts which are not required to be disclosed on the Disclosure
Schedule).
3. REPRESENTATIONS AND WARRANTIES OF THE BUYER.
-------------------------------------------
The Buyer represents and warrants to the Seller that the statements
contained in this Section 3 are correct and complete in all respects as of the
Closing Date except where qualified otherwise and the Buyer has no Knowledge
that any of the following statements contains a material misstatement or
omission:
(a) Organization of the Buyer.
-------------------------
The Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation.
(b) Authorization of Transaction.
----------------------------
The Buyer has full power and authority (including full corporate power
and authority) to execute and deliver this Agreement and all related
documents and to
-12-
<PAGE>
perform its obligations hereunder and thereunder. Without limiting
the generality of the foregoing, the board of directors of the Buyer
have duly authorized the execution, delivery, and performance of this
Agreement by the Buyer.
(c) Noncontravention.
-----------------
The execution and the delivery of this Agreement, and the consummation
of the transactions contemplated hereby, and all consents and permits
obtained in connection herewith and therewith, will not materially (i)
violate any organizational, governmental or contractual obligation of
the Buyer, (ii) conflict with, result in a breach of, constitute a
default under any agreement or other arrangement to which the Buyer
is a party or by which it is bound or to which any of its assets is
subject, or (iii) or result in Material Adverse Consequences with
respect to the Buyer.
4. CONDITIONS TO OBLIGATION TO CLOSE.
---------------------------------
(a) Conditions to Obligation of the Buyer.
---------------------------------------
The obligation of the Buyer to consummate the transactions to be
performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the representations and warranties of Section 2 above shall be
true, correct and complete in all respects, except where
otherwise qualified or as may be set forth in a Disclosure
Schedule attached hereto and none of such statements or
disclosures shall contain a material misstatement or omission as
of the Closing Date;
(ii) The Seller shall have performed and complied with all of their
covenants hereunder through the Closing;
(iii) the Seller shall have procured any and all material third
party or governmental consents or authorizations required to
consummate the transactions contemplated herein;
-13-
<PAGE>
(iv) no material action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any jurisdiction against the Seller;
(v) The individuals listed on the attached Schedule D shall have
entered into Employment Agreements and each of the same shall be
in effect simultaneously at the Closing;
(vi) the Seller shall have delivered to Buyer an officer's
certificate and Secretary's Certificate, each in the form of
Exhibit C and Exhibit D, respectively, attached hereto; and
(vii) the Seller shall have delivered such other documents as the
Buyer may reasonably request on or prior to the Closing Date to
consummate the Closing of this Agreement and the transactions
contemplated herein.
(b) Conditions to Obligation of the Seller.
--------------------------------------
The obligation of the Seller to consummate the transactions to be
performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 above
shall be true, correct and complete in all respects, except
where otherwise qualified and none of such statements or
disclosures shall contain a material misstatement or omission as
of the Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the
Closing;
(iii) the Buyer shall deliver the Adjusted Purchase Price; and
(iv) the Buyer shall deliver such other documents as the Seller may
reasonably request on or prior to the Closing Date to consummate
the Closing of this Agreement and the transactions contemplated
herein.
-14-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF THE TAIWAN STOCKHOLDERS
---------------------------------------------------------
Each Taiwan Stockholder warrants to the Buyer individually, not jointly,
that as of Closing Date:
(a) The Taiwan Stockholder is not aware of any liability of the Seller
that has not been disclosed to in writing to the Buyer.
(b) Where a Taiwan Stockholder has acted in an executive capacity on
behalf of the Seller he or she has not, except in the Ordinary Course
of Business, taken any action to create any legal Liability on behalf
of the Seller.
(c) Where a Taiwan Stockholder has not acted in an executive capacity on
behalf of the Seller he has not taken any action to create any legal
Liability on behalf of the Seller.
(d) If the Taiwan Stockholder is a corporation, the Taiwan Stockholder is
duly organized, validly existing, and in good standing under the laws
of the jurisdiction of its incorporation.
(e) In the event that any Taiwan Stockholder breaches any of its
representations, warranties or covenants contained in this Agreement,
such Taiwan Stockholder individually, not jointly, such that one
Taiwan Stockholder agrees to indemnify hold harmless and defend the
Buyer from and against the entirety of any Material Adverse
Consequences the Buyer may suffer so long as provided the Buyer makes
a written claim for indemnification against such Taiwan Stockholder
and such Material Adverse Consequences arise during the survival
period of this Agreement, resulting from, arising out of, relating to,
in the nature of, or caused by the breach (or the alleged breach),
provided, however, that such Taiwan Stockholder shall not be liable
-------- -------
for a breach of the warranty set forth in this Section
-15-
<PAGE>
5 except where there has been fraud or deliberate concealment on his
part.
(f) The Taiwan Stockholder has full power and authority (including, if the
Taiwan Stockholder is a corporation, full corporate power and
authority) to execute and deliver this Agreement and all related
documents and to perform his or her obligations hereunder and
thereunder. Without limiting the generality of the foregoing, for
each Taiwan Stockholder that is a corporation, the board of directors
and the stockholders of such corporation have duly authorized the
execution, delivery, and performance of this Agreement and such Taiwan
Stockholder has obtained all waivers, consents and approvals in
respect of its corporate capacity which are required or necessary for
the consummation of this transaction. This Agreement constitutes the
valid and legally binding obligation of the Taiwan Stockholder,
enforceable in accordance with its terms and conditions.
(g) The execution and the delivery of this Agreement and any related
documents by the Taiwan Stockholder, the performance by the Taiwan
Stockholder of his or her obligations hereunder and thereunder, the
consummation of the transactions contemplated hereby and thereby, and
all consents and permits obtained in connection herewith and
therewith, will not materially, (i) violate any organizational,
governmental or contractual obligation, or (ii) conflict with, result
in a breach of, constitute a default under, result in Material Adverse
Consequences under any agreement or other arrangement to which any of
such Persons is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Encumbrance upon
any of its assets); Each Taiwan Stockholder has obtained any and all
waivers, consents or approvals required by any third parties or
governmental authorities with respect to obligations under this
Agreement and any related agreement executed by Taiwan Stockholder.
6. POST-CLOSING COVENANTS.
-----------------------
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<PAGE>
The Seller and the Taiwan Stockholders agree as follows with respect to the
period following the Closing.
(a) General.
--------
In case at any time after the Closing any further action is reasonably
necessary or desirable to carry out the purposes of this Agreement and
the transactions contemplated herein, as determined in Buyer's
reasonable discretion, the Seller will take such further action
(including the execution and delivery of such further instruments and
documents), all at the sole cost and expense of the Buyer (unless the
Buyer is entitled to indemnification as set forth below), including
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or similar
circumstance.
(b) Transition.
------------
The Seller and the Taiwan Stockholders will not solicit or take any
action that is designed or intended to have the effect of discouraging
any employee, lessor, licensor, customer, supplier, or other business
associate of any of the Seller from maintaining the same business
relationships with the Buyer after the Closing as such persons
maintained with the Seller prior to the Closing, provided, however,
-------- -------
that Seller may act in accordance with the provisions of the License
Agreement without being deemed in breach of this clause (b).
(c) Confidentiality.
----------------
The Seller and the Taiwan Stockholders will treat and hold as such all
of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and
deliver promptly at Closing to the Buyer all tangible embodiments and
all digital media copies of the Confidential Information which are in
its, his or her possession.
-17-
<PAGE>
(d) Covenant Not to Compete.
-----------------------
Except as provided in the License Agreement and/or an Employment
Agreement with Buyer, for a period of three (3) years from and after
the Closing Date, the Seller and the Taiwan Stockholders will not
engage directly or indirectly including managing, financing,
consulting, owning or being in the employment of any business of
automated or semi-automated cytological testing (other than as a
client of any company which is an Affiliate of Neuromedical Systems,
Inc.), provided, however, that: (i) ownership of less than 5% of the
-------- -------
outstanding stock of any publicly traded corporation, and/or (ii)
ownership of any amount of stock of Neuromedical Systems, Inc., or any
or its Subsidiaries, shall in either case be deemed not to be engaged
by reason thereof in any of the business above described. If the
final judgment of a court of competent jurisdiction declares that any
term or provision of this paragraph is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration,
or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest
to expressing the intention of the invalid or unenforceable term or
provision, and this provision shall be enforceable as so modified
after the expiration of the time within which the judgment may be
appealed.
(e) Bulk Transfer and Tax Compliance Laws.
--------------------------------------
The parties agree to cooperate in taking such actions as may be
necessary or appropriate to comply with applicable bulk sales law
and/or sales or transfer Tax provisions in jurisdictions in which the
Assets are situated or which may otherwise be applicable to the
transactions contemplated hereby; provided, however, that Seller is
-------- -------
liable for and shall pay in full any amount owed under such laws and
agrees to indemnify Buyer in accordance with the provisions of Section
7 for any amount paid by Buyer pursuant to such laws and for any
losses or
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<PAGE>
damages Buyer suffers as a result of any of the Parties failing to
comply with any such laws.
(f) Name Change.
------------
Seller shall take any and all action deemed reasonably necessary in
the sole discretion of Buyer to establish new Chinese and English
names for operation of the Business which shall be effective
simultaneously upon termination of the License Agreement; such name
changes shall include, but not be limited to, any and all required
corporate, authorized, official, commercial, trade and/or assumed
names, and any other name or mark of Seller or the Business that have
a near resemblance thereto with respect to the Business. In addition,
if deemed reasonably necessary by Buyer, Seller shall amend its
Articles of Incorporation to change its corporate name. In accordance
with the License Agreement, Buyer hereby grants to Seller, at the
Effective Time, the right to continue to use any and all of Seller's
authorized, official, commercial, trade and/or assumed names on
existing packaging, stationery and purchase order forms and any other
printed materials until the termination of the License Agreement or
earlier if so notified by Buyer. Seller will take any and all further
action reasonably necessary to carry out the foregoing name changes
including, but not be limited to, the execution and delivery of such
further instruments and documents, registration of such changed names
with any and all required Taiwan legal authorities, and reasonable
notice to each and every employee, lessor, licensor, customer,
supplier, or other business associate of the Business so as to
maintain the same business relationships with the Buyer after the name
changes as such person maintained with the Business in the Ordinary
Course of Business prior to such name changes.
(g) Subleases, Sublicenses and Subcontracts.
---------------------------------------
Immediately prior to the termination of the License Agreement, Seller
shall promptly take any and all action necessary to legally sublease,
sublicense or subcontract, as the case may be, to Buyer, (i) each of
the lease and contract
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<PAGE>
agreements specified in paragraphs (j) and (l) of Section 2 above,
each such sub-agreement to be legal, valid, binding, enforceable, and
in full force and effect on identical terms to the respective
agreement which is the subject of such sub-agreement.
(h) Seller further covenants that it shall maintain itself as a
corporation duly organized, validly existing, and in good standing
under the laws of Taiwan, with full corporate power and authority to
conduct business in Taiwan during the term of the License Agreement
and during the terms of any and all sublicenses entered into pursuant
to paragraph (g) above.
(i) At or prior to the Closing, Seller shall procure reasonably adequate
insurance for replacement of the Assets, such insurance to include
coverage for continuation of the Business in the event of fire, flood,
theft, or other similar event which would cause loss of the Assets or
loss of use of the Business premises. Such insurance coverage shall
be upon reasonable terms and conditions which are customary for
similarly situated businesses purchasing similar types of risk
coverage. The policy thereof shall be effective under the terms of
the License Agreement, and shall be transferable to the Buyer upon
termination of the License Agreement. Buyer shall reimburse Seller
for the cost of such insurance policy in accordance with the terms of
the License Agreement.
7. INDEMNIFICATION.
---------------
(a) Survival.
---------
All of the representations and warranties of the Buyer, the Seller,
the Seller and the Taiwan Stockholders contained in this Agreement
shall survive the Closing and continue in full force and effect for a
period of three (3) years thereafter provided, however, that the
-------- -------
representations and warranties set forth in Section 2(h) shall survive
until the expiration of the applicable statute of limitations (with
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<PAGE>
extensions).
(b) Indemnification of Buyer.
------------------------
In the event the Seller breaches any of its representations,
warranties, and covenants contained in this Agreement provided that
the Buyer makes a written claim for indemnification against the
Seller, then the Seller agrees to indemnify hold harmless and defend
the Buyer from and against the entirety of any Material Adverse
Consequences the Buyer may suffer so long as such Material Adverse
Consequences arise during the survival period of this Agreement,
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach); provided, however, that
-------- -------
the Indemnification provided for herein shall be limited to the
Adjusted Purchase Price hereof, except the indemnity shall not be so
limited in the case of any (x) fraud or (y) Material Adverse
Consequences resulting from, arising out of, relating to, in the
nature of, or caused by any disclosure set forth, or omitted from, a
Disclosure Schedule, which qualifies, or would qualify, any of the
representations and warranties of the Seller.
(c) Indemnification of Seller.
-------------------------
In the event the Buyer breaches any of its representations,
warranties, and covenants contained in this Agreement, provided that
the Seller makes a written claim for indemnification against the
Buyer, then the Buyer agrees to indemnify the Seller from and against
the entirety of any Material Adverse Consequences the Seller may
suffer through and after the date of the claim for indemnification
(including any Material Adverse Consequences the Seller may suffer so
long as such Material Adverse Consequences arise during the survival
period of this Agreement) resulting from, arising out of, relating to,
in the nature of, or caused by the breach (or the alleged breach),
provided, however, that the indemnification provided for herein shall
-------- -------
be limited to the Adjusted Purchase Price hereof.
(d) Representation.
---------------
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<PAGE>
(i) If any third party shall notify any of Buyer, the Seller or any
Taiwan Stockholder (each, an "Indemnified Party") with respect
to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against any other Party (the
"Indemnifying Party"), then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then solely to
the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of
its choice reasonably satisfactory to the Indemnified Party so
long as (A) the Indemnifying Party notifies the Indemnified
Party in writing within fifteen (15) days after notice of the
Third Party Claim; and (B) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable
relief.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim, (A) the Indemnified Party may retain
separate co-counsel at its sole cost and expense and participate
in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party (not
to be withheld unreasonably), and (C) the Indemnifying Party
will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(e) Buyer's Right of Offset.
------------------------
Anything in this Agreement to the contrary notwithstanding, Buyer may
withhold and set off against other amounts otherwise due Seller or a
Taiwan Stockholder
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<PAGE>
any amount as to which Seller or a Stockholder is obligated to
indemnify.
8. MISCELLANEOUS.
-------------
(a) No Third Party Beneficiaries.
----------------------------
This Agreement shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted
assigns.
(b) Entire Agreement.
----------------
This Agreement (including the Exhibits and Schedules referred to
herein) and the License Agreement in the form attached hereto as
Exhibit E, constitute the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by
or between the Parties, written or oral, to the extent they related in
any way to the subject matter hereof.
(c) Succession and Assignment.
-------------------------
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted
assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however, that without such
written approval the Buyer may: (i) assign any or all of its rights
and interest hereunder to one or more Persons, and (ii) designate one
or more Persons to perform its obligations hereunder.
(d) Execution and Counterparts.
--------------------------
This Agreement may be executed via facsimile in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument, provided
that actual execution exemplars of each such facsimile signature must
be forwarded and delivered to the other Parties no later than ten (10)
days following the Closing.
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<PAGE>
(e) Headings.
--------
The Section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices.
-------
All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or
other communication hereunder shall be deemed duly given if (and then
two (2) business days after) it is sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to the Buyer:
NEW SYSTEM LTD.
C/O Neuromedical Systems, Inc.
Two Executive Boulevard
Suffern, NY 10901, USA
Attn: John B. Henneman, III
Facsimile: (914) 368-4068
If to the Seller:
Papnet Far East, Ltd.
3F-2, NO. 482, SEC. 5, Chung Hsiao E. Road
Taipei, Taiwan
Tel : [002] 011+886 - 2 - 728-2296
Fax : [002] 011+886 - 2 - 759-2273
If to the Taiwan Stockholders:
At the respective addresses set forth on the signature page
hereto.
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set
forth above using any other means (including facsimile, personal
delivery, expedited courier, messenger service, telecopy, telex,
ordinary mail, or electronic mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended
recipient. Any
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<PAGE>
Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by
giving the other party notice in the manner herein set forth.
(g) Governing Law and Jurisdiction.
------------------------------
This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of New York without giving effect to
any choice or conflict of law provision or rule (whether of New York
or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York. Each of
the Parties submits to courts having jurisdiction in the State of New
York, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or
other security that might be required of any other Party with respect
thereto. Any Party may make service on the other Party by sending or
delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in
Section 9(f) above.
(h) Amendments and Waivers.
----------------------
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Buyer and the Seller.
No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(i) Severability.
------------
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<PAGE>
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(j) Construction.
-------------
The Parties have participated jointly in the negotiation 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 disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. The word "including" shall
mean including without limitation.
(k) Specific Performance.
--------------------
Each of the Buyer, the Seller and the Taiwan Stockholders agrees that
each such Party may be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of
the Parties agrees that the other Parties, individually, shall be
entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted
in any court of equity or law having jurisdiction over the Parties and
the matter, at law or in equity.
(l) Expenses.
--------
The Parties shall each bear their own costs and expenses incurred in
connection with the transactions contemplated in this Agreement
including, without limitation, the fees and expenses of their counsel
and accountants.
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<PAGE>
(m) Risk of Loss.
------------
The risk of loss of the Assets of the Seller shall remain with the
Seller until the termination of the License Agreement.
(n) Remedies Cumulative.
-------------------
No remedy set forth in this Agreement or otherwise conferred upon or
reserved to any party shall be considered exclusive of any other
remedy available hereunder, at law or in equity to any party, but the
same shall be distinct, separate and cumulative and may be exercised
from time to time as often as occasion may arise or as may be deemed
expedient.
(o) Confidential Information and Publicity.
--------------------------------------
No party hereto shall make any public disclosure of the specific terms
of this Agreement, except as required by law. In connection with the
negotiation of this Agreement and the preparation for the consummation
of the transactions contemplated hereby, each of the Parties
acknowledges that certain confidential information relating to such
Parties may be disclosed to another Party. Each Party shall treat
such information as confidential, preserve the confidentiality thereof
and not duplicate or use such information, except as reasonably
necessary to discuss the transactions contemplated herein with
attorneys, advisors, consultants, and Affiliates, and except as
required to comply with any law or any provision of this Agreement or
related documents necessary to consummate the transactions
contemplated herein.
9. DEFINITIONS.
-----------
"Adjusted Purchase Price" has the meaning set forth in Section 1(c).
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
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<PAGE>
"Assets" means: (i) all right, title and interest in and to the Business,
properties, assets and rights of any kind of the Seller, whether tangible or
intangible, real or personal, and constituting, or used or useful in connection
with, related to, the Seller's Business, including, but not limited to the
Seller's (a) real property and fixtures, (b) personal property, (c) Intellectual
Property, (d) equipment and real property leases, (e) agreements and contracts,
(f) accounts and notes receivable, (g) claims, deposits, prepayments, and
refunds, (h) approvals, permits, licenses, registrations, certificates and
similar rights obtained from governments and governmental agencies, (i)
computers, software, data, books, records, ledgers, files, documents,
correspondence, lists (including customer lists), advertising and promotional
materials, studies, reports, and any other printed, written or digital
materials, and (j) all Insurance Policies, to the extent assignable; provided,
--------
however, that (ii) notwithstanding the foregoing, the Assets shall not include
- -------
(a) Cash, (b) material relating uniquely to the corporate organization,
maintenance, and existence of the Seller as a corporation, and (c) any of the
rights of the Seller under this Agreement (or under any ancillary agreement
between the Seller and the Buyer entered into on or after the date of this
Agreement).
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the Recitals of this Agreement above
except with respect to Section 7 in which case it shall mean Buyer, its
officers, directors, employees, agents, representatives, stockholders and their
respective successors and assigns.
"Business" means all of the business of Seller as conducted on the date
hereof.
"Closing Date" has the meaning set forth in Section 1(d).
"Closing Financial Statement" has the meaning set forth in Section 2(f)
"Closing" has the meaning set forth in Section 1(d).
"Confidential Information" means any information concerning the Businesses
and affairs of the Seller that is not already generally available to the public.
"Disclosure Schedule" has the meaning set forth in Section 2.
"Effective Time" has the meaning set forth in Section 1(b).
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<PAGE>
"Employment Agreements" shall mean the employment agreements entered into
by each of the persons listed on the attached Schedule D.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance, or other right of
third parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in the
future, and any contingent sale or other title retention agreement or lease in
the nature thereof.
"Environmental, Health, and Safety Laws" means any one or more laws,
statutes, rules, common law holdings, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder of federal, state,
local, and foreign governments (and all agencies thereof) concerning pollution
or protection of the environment, public health and safety, or employee health
and safety.
"Excluded Liabilities" has the meaning set forth in Section 1(g).
"Financial Statements" has the meaning set forth in Section 2(f).
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"Indemnified Party" has the meaning set forth in Section 7(d).
"Indemnifying Party" has the meaning set forth in Section 7(d).
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Joint Venture" means any contract, agreement or understanding between one
or more of the Seller and any other Persons to undertake, contribute to or
engage in any activity, in either a direct, intermediary or indirect capacity,
and share or allocate as between such parties or Persons any portion of the
capital, financing, labor, material, Intellectual Property, real or personal
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<PAGE>
property, costs, expenses, profits, Liabilities or losses related either
directly or indirectly to such activity.
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes, royalties or commissions.
"License Agreement" means the License and Management Services Agreement,
dated as of even date hereof, between the Buyer and the Seller, the form of
which is attached hereto as Exhibit E.
"Material Adverse Consequences" means any of one or more of the following
which is subject in amount, singly or in the aggregate, to US$5,000 or more: any
actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court costs and
reasonable attorneys' fees and expenses.
"Most Recent Financial Statements" has the meaning set forth in Section
2(f).
"Most Recent Fiscal Year End" has the meaning set forth in Section 2(f).
"Ordinary Course of Business" means the ordinary course of business
consistent with past day-to-day custom and practice (including with respect to
quantity and frequency) as such business has been conducted during the calendar
years of 1995, 1996 and 1997.
"Partnership" means any contract, agreement or understanding between one or
more of the Seller and any other Persons to undertake, contribute to or engage
in any plan or activity, in either a direct, intermediary or indirect capacity,
and share or allocate as between such parties or Persons any portion of the
capital, financing, labor, material, Intellectual Property, real or personal
property, costs, expenses, profits, Liabilities or losses related either
directly or indirectly to such plan or activity.
"Party" means, individually, each of the Buyer, the Seller and each of the
Taiwan Stockholders, and collectively, "Parties" means all of the foregoing.
"Person" means an individual, partnership, corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Securities Exchange Act" means the United States Securities Exchange Act
of 1934, as amended.
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<PAGE>
"Seller" has the meaning set forth in the Recitals of this Agreement.
"Sellers" shall have the meaning set forth in the Recitals of this
Agreement.
"Seller Share" means any equity ownership share of the Seller.
"Shares" means all issued and outstanding stock of the Seller as of the
Closing.
"Subsidiary" means any entity with respect to which a specified Person (or a
Subsidiary thereof) owns 1% or more of the equity ownership thereof or has the
power to vote, by ownership, agreement, understanding or otherwise, or direct
the voting of sufficient securities to elect one or more directors.
"Taiwan Stockholder " means any Person who holds any equity shares in the
Seller.
"Tax Liability" has the combined meanings of the definitions of "Tax" and
"Liability."
"Tax Return" means any return, declaration, report, claim for refund, or
information return, examination reports, statements of deficiencies assessed
against or agreed to, or any other statement relating to Taxes, any schedule or
attachment to any such item and any amendment thereof.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs, duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, bulk sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
"Third Party Claim" has the meaning set forth in Section 8(d)
* * *
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first written above.
NEW SYSTEM, LTD.
By: /s/ David Duncan, Jr.
Title: Vice President
PAPNET FAR EAST LTD.
By: /s/ David Chang
Title: President
[Signatures Continue on the Following Page]
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<PAGE>
TAIWAN STOCKHOLDERS with respect to Sections 6, 7, 8 and 9 and such of the
definitions in this Agreement applicable to such Sections:
[/s/ Chinese Characters]
Name: [Chinese Characters]
Address: [Chinese Characters]
[/s/ Chinese Characters]
Name: [Chinese Characters]
Address: [Chinese Characters]
[/s/ Chinese Characters]
Name: [Chinese Characters]
Address: [Chinese Characters]
[/s/ Chinese Characters]
Name: [Chinese Characters]
Address: [Chinese Characters]
[/s/ Chinese Characters]
Name: [Chinese Characters]
Address: [Chinese Characters]
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<PAGE>
SCHEDULES, EXHIBITS AND ANNEXES
Schedule A [Intentionally Omitted]
Schedule B [Intentionally Omitted]
Schedule C Allocation Schedule
Schedule D Employment Agreement
Disclosure Schedules
Exhibits:
--------
Exhibit A Form of Bill of Sale
Exhibit B Form of Receipt
Exhibit C Form of Officer's Certificate
Exhibit D Form of Secretary's Certificate
Exhibit E Form of License Agreement
Ancillary documents:
-------------------
Seller's Resolutions
Wire Payment Instructions
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<PAGE>
Exhibit 10.38
LICENSE AND MANAGEMENT SERVICES AGREEMENT
-----------------------------------------
This LICENSE AND MANAGEMENT SERVICES AGREEMENT (hereinafter referred to as
this "License Agreement") is entered into as of the 1st day of August, 1997, by
and between New System Ltd., a Cayman Islands corporation ("Buyer") and Papnet
Far East Ltd., a Taiwan corporation ("Seller"). Capitalized terms not defined
herein have the meanings given them in the Asset Purchase Agreement dated as of
even date herewith (the "Purchase Agreement") between Buyer, Seller and
stockholders of the Seller.
RECITALS
--------
A. The Asset Purchase Agreement contemplates that Buyer will purchase the
Assets from Seller and operate the Business after the Closing;
B. Buyer and Seller are ready to proceed with the Closing, but one or more
governmental approvals necessary for the operation of the Business as a branch
office of the Buyer after the Closing ("Necessary Approvals") have not yet been
obtained; and
C. Buyer and Seller therefore wish to proceed with the Closing, and
transfer title to the Assets to Buyer at the Closing, but simultaneously to
enter into this License Agreement, pursuant to which Seller will operate the
Business for the benefit of Buyer.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. License. Buyer hereby grants to Seller a license to operate the
-------
Business for the benefit of Seller (the "License Purpose") during the term of
this Agreement; provided, however, that this license in no way constitutes a
-------- -------
transfer of title or ownership of the Assets to Seller, nor a transfer to Seller
of any intellectual property rights of Buyer. For purposes of operation of the
Business, Buyer grants to Seller a limited license to use during the term of
this License Agreement and solely for the purpose of Seller's operation of the
Business in the Ordinary Course of Business, such of Buyer's intellectual
property rights as may in the sole discretion of Buyer be deemed reasonably
necessary for operation of the Business in the Ordinary Course of Business, with
any and all such rights subject to revocation at any time by Buyer.
2. Powers and Duties of Seller. Seller shall have the following duties
---------------------------
during the term of this License Agreement:
a. To accept possession (but not title or ownership) of the Assets and to
use them only in the Ordinary Course of Business for operation of the
Business, and for purposes other than in the Ordinary Course of Business as
may be specifically authorized in writing from time to time by the Buyer;
b. To manage the Business for the benefit of Buyer, in accordance with the
instructions and policies of Buyer, including, but not limited to,
employment of a staff sufficient to operate the Business consistent with
Ordinary Course of Business prior to the acquisition of the Assets by
Buyer, and to maintain and operate the Business in such additional or
modified manner as Buyer may direct from time to time;
c. To distribute revenue of the Business to Buyer in such amounts as Buyer
may direct from time to time;
-2-
<PAGE>
d. To retain sufficient cash to pay operating expenses reasonably expected
to be incurred by the Business, in such amounts as Buyer may direct from
time to time;
e. To maintain records with respect to the Business consistent with
practice prior to the acquisition of the Assets by Buyer and in such
additional or modified manner as Buyer may direct from time to time;
f. To render to Buyer, monthly and as of the date of termination of this
Agreement, an accounting and report which includes all information
requested by Buyer and in such form as requested by Buyer;
g. To grant full access to Buyer to inspect the Assets or records of the
Business at any time and to permit Buyer to discuss any and all affairs of
the Business with directors, officers, employees and agents of the Seller;
and
h. To execute any documents and perform any and all acts necessary or
desirable to carry out the License Purpose.
3. Limitations. Seller shall not engage in any activities beyond those
-----------
necessary or desirable for carrying out the License Purpose, shall not retain
cash in excess of amounts deemed reasonably necessary by Buyer to satisfy the
operating expenses referred to in clause 2 above, and shall at all times act
solely for the benefit of Buyer.
4. Duties of Buyer. Buyer shall allocate a portion of the revenues of the
---------------
Business for payment of employees of the Business and for expenses incurred in
the Ordinary Course of Business, and, so long as Seller operates and maintains
the Business in accordance with clause 2 above, Buyer shall reimburse Seller for
expenses incurred in the Ordinary Course of Business which exceed revenues of
the Business, provided, however, Buyer may modify such allocations
-------- -------
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<PAGE>
and/or reimbursements upon reasonable notice to Seller with respect to revision
by Buyer of its policies governing the Ordinary Course of Business of the
Business.
5. No Additional Fees. Seller will not be required to pay any additional
------------------
license or management fee hereunder. The consideration paid by Buyer to Seller
at the Closing shall constitute full payment for Seller's management services
hereunder and as manager under any long-term management agreement entered into
pursuant to Section 5(b) below.
6. Termination.
-----------
(a) This License Agreement shall terminate on the date that written notice
of termination is given by Buyer to Seller (the "Termination Date"). Buyer may
terminate this License Agreement at its sole discretion and for any reason
whatsoever (including receipt of all Necessary Approvals). Promptly after the
Termination Date, possession of all Assets of the Business as of the Termination
Date shall be relinquished to or at the direction of Buyer. Seller hereby
appoints Buyer as its attorney-in-fact for purposes of executing any document,
or taking any action, necessary or desirable to effect or expedite such
transfer. This appointment is irrevocable and coupled with an interest, the
adequacy and sufficiency of which is expressly acknowledged by the Buyer and the
Seller.
(b) If the Termination Date occurs at a time when any Necessary Approvals
have not yet been obtained, this License Agreement may, at the option of Buyer,
automatically convert into a long-term management agreement containing the terms
contained in this License Agreement and such additional terms as may be
specified in writing with respect to additional specific management duties to be
performed by Seller, and additional specific limitations on Seller's management
power. If this License Agreement converts into a long-term management agreement,
possession (but not title or ownership) of the Assets of the Business shall
remain with
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<PAGE>
Seller under the terms of this License Agreement, as modified by the long-term
management agreement. Notwithstanding the foregoing, if Necessary Approvals are
not obtained or for other reasons Buyer is unable to operate as a branch office
in Taiwan, Buyer may, at its sole discretion, direct Seller to sell, transfer,
liquidate or dispose of the Assets, in whole or in part, and any and all
additional or other property obtained, received, purchased or otherwise accrued
to the Business since the Closing. Any and all of the proceeds and/or
consideration received from such disposition shall be the property of the Buyer
and shall be promptly remitted to the Buyer, without setoff of any kind or for
any reason.
7. Indemnification. Seller shall indemnify and hold harmless Buyer and
---------------
its affiliates for any and all claims, expenses or other losses (including
attorneys' fees) arising out of any negligent or willful mismanagement of the
operation of the Business or any breach of this License Agreement from the date
of this License Agreement through and including the Termination Date. This
indemnification provision shall survive the Termination Date.
8. Confidentiality. Seller will hold confidential, will not disclose to
---------------
any third party and will not use for any purpose other than the License Purpose
all confidential or proprietary information regarding the Business which it
received prior to the Closing or receives pursuant to this License Agreement.
This confidentiality provision shall survive the Termination Date.
9. Amendment. This License Agreement may be amended only by a writing
---------
signed by Seller and Buyer.
-5-
<PAGE>
10. Representations, Warranties and Further Covenants of Seller.
-----------------------------------------------------------
This License Agreement incorporates by reference provisions (a), (b), (c),
(g), (h), (i), (j), (k), (l), (m), (n), (o), (p) and (r) under Section 2 of the
Asset Purchase Agreement, and Seller hereby covenants that such representations
and warranties shall remain correct, true and complete with respect to continued
operation of the Business hereunder except as may be set forth in a revised
Disclosure Schedule delivered via facsimile to Buyer within one (1) day of any
exception to such representations and warranties.
11. Miscellaneous.
-------------
This License Agreement incorporates by reference provisions (a), (b), (c),
(d), (e) (f), (g) (h), (i), (j), (k), (l), and (n) under Section 8 of the Asset
Purchase Agreement, and each such provision shall have full force and effect
with respect to this License Agreement as if fully set forth herein.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, this Agreement shall be effective as of the date first
above written.
NEW SYSTEM LTD.
By: /s/ David Duncan, Jr.
Name: David Duncan, Jr.
Title: Vice President
PAPNET FAR EAST LTD.
By: /s/ David Chang
Name: David Chang
Title: President
<PAGE>
Exhibit 10.39
AMENDED AND RESTATED REPRESENTATION AGREEMENT
BETWEEN
NEUROMEDICAL SYSTEMS, INC.
AND
PAPNET (FAR EAST) LTD.
Dated as of September 30, 1997
<PAGE>
This AMENDED AND RESTATED REPRESENTATION AGREEMENT (the "Third Agreement")
is made this 30th day of September 1997, by and between Neuromedical Systems,
Inc., a Delaware corporation ("NSI") and Papnet (Far East) Ltd., a Cayman
Islands corporation ("PFEL").
WHEREAS, NSI has designed, developed and produces the PAPNET Testing System
(referred to herein as, "PAPNET" or "PAPNET Testing"), which is a semi-automated
system for the review of conventionally prepared cytological specimen slides
(the "Slides");
WHEREAS, PAPNET consists of a scanning system (the "Scanner"), which
processes Slides and stores digital images of certain portions of such Slides on
a DAT tape or other digital media ("PAPNET Images"), and a proprietary review
station (the "Review Station"), which, among other things, permits a NSI-trained
cytotechnologist to review the images stored on the DAT tape or other digital
media;
WHEREAS, NSI markets and sells PAPNET Testing as a service, by which end-
user laboratories submit Slides to one of NSI's central facilities for
processing on a Scanner, and NSI returns such Slides and related DAT tape or
other digital media containing PAPNET Images to such laboratories so that NSI-
trained cytotechnologists employed by such laboratories may review the Slides
and the related PAPNET Images using a licensed or leased Review Station
(collectively referred to herein as, the "PAPNET(R) Service");
WHEREAS, NSI and PFEL are parties to an agreement dated July 13, 1993
providing for, among other things, the representation of NSI in certain markets
by PFEL and the provision of the PAPNET Service to PFEL as an end-user
laboratory (the "First Agreement");
WHEREAS, NSI and PFEL are parties to an agreement dated May 27, 1994,
amending and restating the First Agreement, and providing for, among other
things, the representation of NSI in certain markets by PFEL and the provision
of the PAPNET Service to PFEL as an end-user laboratory (the "Second
Agreement");
WHEREAS, NSI Asia Pacific Ltd., a Cayman Islands corporation and wholly
owned subsidiary of NSI ("NSI-APL"), has acquired as of June 1, 1997 all of the
issued and outstanding stock of New System International Ltd., a Hong Kong
corporation, previously a wholly owned subsidiary of PFEL, and under the terms
and conditions of the Royalty Agreement Term Sheet, dated as of June 1, 1997
(the "Royalty Agreement"), executed in connection with such acquisition, NSI and
PFEL have agreed to renegotiate the Second Agreement in accordance with the
conditions set forth therein;
WHEREAS, NSI and PFEL desire that this Third Agreement supersede and
replace the Second Agreement in accordance with the Royalty Agreement;
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<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and in
consideration of the representations, warranties and covenants herein contained,
of which the adequacy and sufficiency of such consideration is expressly
acknowledged by NSI and PFEL, the parties hereto agree as follows set forth in
this Third Agreement:
1. Representation and Marketing.
1.1 Representation Rights. Upon the terms and subject to the conditions
of this Third Agreement, NSI hereby grants to PFEL the following rights during
the Term (as defined in Section 9 herein) of this Third Agreement: The non-
exclusive right and license to market, sell and distribute the PAPNET Service
(the "Representation Rights") in Hong Kong, Taiwan and the People's Republic of
China (the "Territory").
1.2 Intellectual Property. NSI hereby grants PFEL a non-exclusive,
revocable right to use, for the limited purpose of PFEL's marketing and sale of
the PAPNET Service, the copyrights, trademarks and trade names used by NSI to
identify PAPNET or the PAPNET Service in accordance with such written
specifications as NSI may from time to time make available to PFEL. PFEL agrees
to comply with NSI's prevailing policies regarding use of NSI's copyrights,
trademarks and trade names used by NSI's distributors and representatives, as
such policies may be amended from time to time. PFEL shall not use NSI's
copyrights, trademarks or trade names in a disparaging manner. Except as
authorized in this Section 1.2, PFEL shall not otherwise use NSI's copyrights,
trademarks or trade names without the prior written approval of NSI. PFEL shall
not take any action which is inconsistent with NSI's ownership of its
copyrights, trademarks and trade names. NSI agrees to include correct
trademark, trade name, copyright, trade secrets and patent notices for the
PAPNET System and the PAPNET Service on all materials and equipment where
appropriate. PFEL shall not remove, alter, cover, obfuscate or otherwise deface
any NSI trademark, trade name, patent, trade secret or copyright notice on the
PAPNET System or any part thereof or any promotion or advertising material used
in conjunction with or for the PAPNET System or the PAPNET Service. PFEL shall
not represent that any product or system sold in conjunction with the PAPNET
System or PAPNET Service is a product manufactured or endorsed by NSI.
1.3 Nature of appointment. Nothing contained in this Third Agreement
shall (i) prohibit NSI from making, using, licensing, distributing, selling or
granting any other rights in and to PAPNET Services in the Territory or (ii)
operate to grant PFEL any rights in or to any product or service offered by NSI
other than its rights expressly provided by this Third Agreement.
1.4 Field of use restriction. Except as otherwise contemplated by this
Third Agreement, PFEL shall not market, distribute, sell or license, or permit
any third party to market, distribute, sell or license, the PAPNET Service to
any third party located outside of the Territory or for any use other than uses
permitted in writing by NSI. PFEL
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<PAGE>
shall not, or shall not permit any third party to, encourage uses of PAPNET
other than as permitted by NSI.
1.5 Regulatory approval. PFEL shall not market the PAPNET Service in a
particular jurisdiction unless and until all regulatory approvals, licenses and
permits required by such jurisdiction or any court of competent jurisdiction,
governmental body or regulatory agency (a "Governmental Body"), if any, have
been obtained. PFEL, at its sole cost and expense, shall prepare and submit any
and all appropriate applications, data and other information required by such
jurisdiction or Governmental Body to obtain all regulatory approvals, licenses
and permits in such jurisdictions. NSI shall assist PFEL in filing all required
documents with, and in obtaining any necessary approvals, permits or licenses
from, any applicable Governmental Body.
1.6 Governmental restrictions. In the event that any Governmental Body
restricts or prohibits the marketing, distribution, provision or licensing of
the PAPNET Service or PAPNET, PFEL's rights hereunder shall be subject to and
limited by any such restriction or prohibition without liability to NSI of any
type or nature except as expressly provided herein to the contrary.
1.7 Marketing Obligation. PFEL, at its expense, will develop and
implement a comprehensive marketing and sales program to promote successfully
the PAPNET Service in the Territory. PFEL will develop, on an annual basis,
market plans for each major segment of the Territory. These plans will be
subject to review by NSI. Each plan will include an outline of PFEL's strategic
objectives for the marketing of PAPNET in such Territory, as well as the
specific steps PFEL proposes to execute. PFEL may delegate its duties and
obligations of this Section 1.7, provided, however, that such delegation may be
--------------------
made only upon express written consent obtained in advance from NSI.
2. Consideration.
2.1 Consideration for Representation Rights. In consideration of the
Representation Rights granted herein, PFEL shall deliver to NSI at the execution
hereof US$800,000 (Eight Hundred Thousand United States Dollars).
3. Representations and Warranties of NSI.
NSI hereby represents and warrants to PFEL as follows:
3.1 Organization. NSI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. NSI has the
corporate power to own or lease its properties and assets and to carry on its
business as now conducted.
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<PAGE>
3.2 Authority relative to this Third Agreement. NSI has the right, power
and authority to enter into this Third Agreement and to perform all of its
obligations hereunder. This Third Agreement has been authorized by all
necessary corporate action, has been duly executed and delivered and constitutes
the valid and binding obligation of NSI, enforceable in accordance with its
terms.
3.3 No Conflicts; No Consents. The execution, delivery and performance of
this Third Agreement will not result in a breach in the terms or conditions of,
or constitute a default under, or violate, or conflict with, or require, as the
case may be: (i) any provision of any law, regulation or ordinance, (ii) the
Certificate of Incorporation or Bylaws of NSI, (iii) any agreement, lease,
mortgage or other instrument or undertaking, oral or written, to which NSI is a
party or by which it or any of its properties or assets is or may be bound or
affected, (iv) any judgment, order, writ, injunction or decree of any
Governmental Body, or (v) any action of or by, or filing with, any Governmental
Body. To the knowledge of NSI, the execution and delivery of this Third
Agreement does not and, except for any approvals, permits and licenses required
to market the PAPNET Service in the Territory, the performance of this Third
Agreement will not, require any action, consent or approval of any person,
entity or Governmental Body.
3.4 Litigation. Except as disclosed in its publicly filed documents
pursuant to U.S. federal securities laws, there is no pending or, to the
knowledge of NSI, threatened, legal, administrative, arbitration or other
proceeding or governmental investigation which is likely to have a material
adverse effect on NSI or the performance by NSI of this Third Agreement.
4. Representations and Warranties of PFEL.
PFEL hereby represents and warrants to NSI as follows:
4.1 Organization. PFEL is a corporation duly organized, validly
existing and in good standing under the laws of the Cayman Islands. PFEL has
the corporate power to own or lease its properties and assets and to carry on
its business as now conducted.
4.2 Authority relative to this Third Agreement. PFEL has the right,
power and authority to enter into this Third Agreement and to perform all of its
obligations hereunder. This Third Agreement has been authorized by all
necessary corporate action, has been duly executed and delivered, and
constitutes the valid and binding obligation of PFEL, enforceable in accordance
with its terms.
4.3 No Conflicts: No Consents. The execution, delivery and performance
of this Third Agreement will not result in a breach in the terms or conditions
of, or constitute a default under, or violate, or conflict with, or require, as
the case may be: (i) any provision of any law, regulation or ordinance, (ii) the
charter and organizational documents of PFEL, (iii) any agreement, lease,
mortgage or other instrument or undertaking, oral or written, to which PFEL is a
party or by which it or any of its
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<PAGE>
properties or assets is or may be bound or affected, (iv) any judgment, order,
writ, injunction or decree of any Governmental Body, or (v) any action of or by,
or filing with, any Governmental Body. To the knowledge of PFEL, the execution
and delivery of this Third Agreement does not, and except for any foreign
approvals, permits and licenses required to market the PAPNET Service in the
Territory, the performance of this Third Agreement will not, require any action,
consent or approval of any person, entity or Governmental Body.
4.4 Litigation. There is no pending or, to the knowledge of PFEL,
threatened, legal, administrative, arbitration or other proceeding or
governmental investigation which is likely to have a material adverse effect on
PFEL or the performance by PFEL of this Third Agreement.
5. Additional Covenants.
5.1 NSI Assurances. NSI shall cause any and all of its direct and/or
indirect subsidiaries, as the case may be, to fully perform their respective
duties and obligations under the terms of any assignment, transfer, sublicense
and/or delegation, in whole or in part, of this Third Agreement to any such
subsidiaries. NSI further covenants, and shall cause its direct and/or indirect
subsidiaries to covenant, that PFEL shall receive substantially the same
consideration as that which PFEL may receive pursuant to any assignment,
transfer, sublicense and/or delegation, in whole or in part, of this Third
Agreement, with respect to any other marketing and/or sales rights granted by
NSI, or any of its subsidiaries, to any third party for the PAPNET(R) Testing
System in any part of the Territory.
5.2 NSI and PFEL Further Assurances. Each of NSI and PFEL covenant that
they shall, at any time during the Term of this License, take any further action
that is reasonably necessary or desirable to carry out the purposes of this
Third Agreement and the transactions contemplated herein and hereby, as may be
determined in the reasonable discretion of the requesting party, and the other
party will take any and all such further action thereof, including the execution
and delivery of any further instruments and documents.
5.3 Business Practice. PFEL shall not solicit or take any action that is
designed or intended to have the effect of discouraging any PAPNET(R) Testing
System customer, supplier, or other business associate from maintaining its
business relationships with NSI or any direct or indirect subsidiary of NSI, as
the case may be, after execution hereof.
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<PAGE>
6. Limitations on Warranties and Liability.
6.1 No warranties. Except as otherwise provided herein, neither NSI nor
PFEL makes any representations or warranties with respect to the PAPNET System
or the PAPNET Service, express or implied, including, but not limited to,
implied warranties of merchantability and fitness for a particular purpose or
that the PAPNET System or the PAPNET Service as developed and designed will met
any requirements of or will perform error free or in conformance with the needs
or requirements of PFEL or any PFEL customer.
6.2 Limitation of liability. Except as provided in Section 8 hereof,
PFEL and/or NSI, as the case may be, shall have no liability with respect to
their respective obligations under this Third Agreement or otherwise for
indirect, special, incidental, consequential, punitive or exemplary damages,
whether in contract, in tort or otherwise, including, but not limited to, loss
of use, revenue or profit, even if PFEL or NSI, as the case may be, has been
advised of the possibility of such damages. In no event shall PFEL's or NSI's
liability, as the case may be, for any reason and upon any cause of action
arising from or relating to this Third Agreement exceed the aggregate revenues
derived by PFEL or NSI, as the case may be, from this Third Agreement, or any
sublicense, assignment or delegation hereof, during the twelve month period
immediately preceding the date such cause of action was commenced; provided,
that nothing herein shall be construed to limit injunctive relief as may be
ordered by any court or arbitrator.
7. Ownership and Intellectual Property Protection.
7.1 Ownership of PAPNET System. PFEL acknowledges and agrees that NSI
is the sole and exclusive owner of all current and future worldwide patents and
patent rights, copyrights, trademarks, trade names, trade secrets, know-how,
utility models and other intellectual property rights (including without
limitation, all applications and registrations with respect thereto) in and to
the PAPNET System or the PAPNET Service (the "Intellectual Property") embodied
in the PAPNET System, all information, materials, clinical and test data reports
and filings produced in connection with any required regulatory approvals,
permits and licenses, and all information, reports, specifications, source code,
object code, documentation, diagrams, flow charts and any other tangible or
intangible materials of any type whatsoever relating to the PAPNET System and
derived or produced by any parties (collectively the "Proprietary Materials").
No provision contained in this Third Agreement shall be construed to transfer to
PFEL any title or ownership interest in the Proprietary Materials or any
Intellectual Property embodied in the PAPNET System or the PAPNET Service.
PFEL hereby irrevocably assigns, transfers and quitclaims to NSI all rights,
title and interest PFEL may at any time be deemed to have in and to the PAPNET
System and all associated Intellectual Property and Proprietary Material
thereof.
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<PAGE>
7.2 Scope of use. PFEL shall not, and shall not permit any third party
to, (a) modify or alter, create or attempt to create, by reverse engineering or
otherwise, translate or decompile, translate or transfer, or otherwise attempt
to derive the source code, structure or algorithms of, the PAPNET System or any
part thereof, (b) use or adapt the PAPNET System or any part thereof in any way,
including using or adapting the PAPNET System or any part thereof otherwise than
in connection with the marketing or sale of the PAPNET Service, (c) use the
PAPNET System or any part thereof to create a derivative work of the PAPNET
System, or (d) rent, lease or otherwise provide temporary access to the PAPNET
System or any part thereof. Unless otherwise agreed to, in the event that NSI,
in its sole discretion, provides any modification, upgrades or enhancements to
the PAPNET System, such modifications shall become a part of, and subject to,
this Third Agreement.
7.3 Control of Intellectual Property protection. NSI shall at all times
retain the sole and exclusive right to pursue, secure, maintain, protect and
enforce its Intellectual Property in and to, or arising out of or related to,
the PAPNET System or the PAPNET Service.
7.4 PAPNET System name. NSI shall have the right in its sole discretion
to select and include any trademark or trade name to identify the PAPNET System.
7.5 Protection of Intellectual Property. PFEL shall use its best
efforts, and shall cause Clients to use their best efforts, to protect and
maintain the protection of the Intellectual Property in and to the PAPNET System
or the PAPNET Service. Upon NSI's request, PFEL shall, at NSI's sole cost and
expense, assist NSI in securing, maintaining and enforcing NSI's Intellectual
Property in and to the PAPNET System or the PAPNET Service including, but not
limited to, undertaking any and all necessary and appropriate actions in
accordance with NSI's request.
7.6 Notice of Infringement. PFEL shall promptly notify, and shall
require Clients to notify, NSI of any infringement of any Intellectual Property
of NSI with respect to the PAPNET System or the PAPNET Service. Upon reasonable
notice of infringement, NSI shall have the right, but not the obligation, to
bring any suit or action for infringement of its Intellectual Property at its
own expense. PFEL shall, if requested by NSI, actively assist in the
prosecution of such action. In the event that NSI fails to take action with
respect to such infringement within a reasonable time after notice of
infringement, PFEL shall have the right to bring any appropriate suit or action
against the infringer at PFEL's expense. In the event PFEL brings and prevails
in such infringement action, any amount recovered from the infringer, whether by
judgment, award, decree or settlement shall firstly be applied to pay for all
losses and damages suffered by PFEL together with all reasonable legal costs and
expenses incurred in such action, any balance thereafter be divided equally
between PFEL and NSI.
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<PAGE>
8. Indemnification.
8.1 Indemnification. PFEL or NSI, as the case may be (the "Indemnifying
Party"), shall, at its sole cost and expense, indemnify and hold NSI or PFEL and
their respective directors, officers, employees, agents, representatives and
affiliates (each, an "Indemnified Party") harmless with respect to any
liabilities, damages, loses, costs and expenses, including reasonable attorney's
fees (any or all of the foregoing being hereinafter referred to as a "Loss"),
insofar as such Loss arises out of or is based upon (i) a misrepresentation or
breach (or alleged misrepresentation or breach) by the Indemnifying Party of its
warranties, covenants and agreements contained herein or (ii) a claim that the
PAPNET System or the PAPNET Service, as the case may be, as used within the
scope of this Third Agreement, infringes or violates any proprietary rights of
any third party.
8.2 Notice of claim; defense. No claim for indemnification hereunder
shall be valid unless notice of the matter which may give rise to such claim is
promptly provided to the Indemnifying Party in writing. The Indemnifying Party
shall have the exclusive right to defend against any claim and control such
defense. The Indemnified Party shall cooperate with the Indemnifying Party in
defending against such claim. In no event shall the Indemnified Party settle
any such claim, lawsuit or proceeding without the Indemnifying Party's prior
written approval.
8.3 Infringement. If, as a result of any such claim of infringement,
PFEL or NSI is permanently enjoined from selling the PAPNET Service or using the
PAPNET System, as the case may be, by a final, nonappealable decree, of a court
of competent jurisdiction, NSI at its sole option and expense, may procure for
PFEL the right to continue to sell the PAPNET Service or use the PAPNET System
that is subject to such decree or may replace or modify the PAPNET System or
PAPNET Service so that the PAPNET Service or PAPNET System is non-infringing.
The foregoing states the entire liability of PFEL or NSI, as the case may be, to
the other with respect to infringement of any proprietary rights of any third
party, and PFEL and NSI hereby expressly waive any other such liabilities that
each may have against the other and its directors, officers, employees, agents,
representatives and affiliates.
9. Term.
9.1 Term. The term of this Third Agreement shall commence on the date
first set forth above and terminate at the end of the fifteenth (15th) year from
such date (the "Term") unless terminated on an earlier date as provided below in
this Section 9.
9.2 Termination by NSI. (a) Except as otherwise permitted in writing by
NSI, this Third Agreement shall terminate automatically upon the termination of
any assignment, transfer, sublicense or delegation hereof; and (b) except as
otherwise provided, this Third Agreement may be terminated by NSI without notice
to PFEL or further action on the part of NSI, upon the occurrence of any of the
following events: (i)
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a material violation or breach by PFEL of any term or provision of this Third
Agreement not attributable to the default of NSI Asia Pacific Ltd. which is not
cured within thirty (30) days of notice of such violation; (ii) the liquidation,
dissolution, winding up or other termination, suspension, discontinuation or
failure of the business of PFEL or its efforts to market the PAPNET Service;
(iii) the insolvency of or admission by PFEL of its failure to pay debts as they
mature, the making by PFEL of an assignment for the benefit of its creditors or
the filing by PFEL of a petition in bankruptcy, the seeking by PFEL of
reorganization or arrangement with creditors or PFEL otherwise taking advantage
of any insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction whether now or hereafter in effect; (iv) upon PFEL being declared
bankrupt or wound up by any court of competent jurisdiction; or (v) if PFEL is
enjoined at any time from marketing and distributing the PAPNET(R) Service, or
assigning, transferring and/or sublicensing its rights granted hereunder, or
delegating its duties and obligations undertaken hereby.
9.3 Termination by PFEL. This Third Agreement may be terminated by
PFEL without notice to NSI or further action on the part of PFEL, upon the
occurrence of any of the following events: (i) a material violation or breach by
NSI of any term or provision of this Third Agreement which is not cured within
30 days of notice of such violation; (ii) the liquidation, dissolution, winding
up or other termination, suspension, discontinuation or failure of the business
of NSI or its efforts to market the PAPNET Service; (iii) the insolvency of or
admission by NSI of its failure to pay debts as they mature, the making by NSI
of an assignment for the benefit of its creditors or the filing by NSI of a
petition in bankruptcy, the seeking by NSI of reorganization or arrangement with
creditors or NSI otherwise taking advantage of any insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction whether now or
hereafter in effect; (iv) the filing of any bankruptcy petition against NSI,
which petition is not dismissed within sixty (60) days; or (v) NSI being
enjoined from licensing its representation, sales and/or distribution rights to
the PAPNET Service within the entirety of the Territory.
9.4 Survival. The termination of this Third Agreement (whether
pursuant to Section 9.2, 9.3 or upon the expiration of the Term) or any part
hereof by either party shall not relieve either party of any obligations
accruing prior to such termination. The representations, warranties, covenants
and agreements of NSI and PFEL set forth herein shall survive any such
termination.
9.5 Cessation. Upon the termination of this Third Agreement or any part
hereof (i) PFEL shall destroy any of NSI's marketing literature, packaging or
Confidential Information and all copies thereof in its possession and certify in
writing that the same have been destroyed and deliver to NSI all information as
is necessary and useful for NSI to market the PAPNET Service, (ii) PFEL shall
immediately cease representing itself as a Licensee of NSI, and (iii) the
parties shall otherwise cooperate in order to effect an orderly termination of
this Third Agreement or any part hereof.
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10. Arbitration.
Except as otherwise provided herein, the parties hereto agree that the sole
and exclusive remedy for any dispute between the parties arising out of or
relating to this Third Agreement shall be resolved by an arbitration procedure
conducted in The City of New York, Borough of Manhattan in accordance with the
rules then obtaining of the American Arbitration Association, except that the
arbitrators shall have no power to alter or modify any express provision of this
Third Agreement, or to render any award which by its terms, effects any such
alteration or modification. Judgment upon the award rendered may be entered by
any court having jurisdiction in the State of New York. If any action or
proceeding is brought to enforce the decision of the arbitrators, the prevailing
party shall be entitled to recover its reasonable attorney's fees and other
costs incident to such action or proceeding. The provisions of this Section 10
shall not affect the right of any party to seek provisional legal or equitable
remedies.
11. Miscellaneous.
11.1 Rules of Construction. As used in this Third Agreement, neutral
pronouns and any variations thereof shall be deemed to include the feminine and
masculine and all terms used in the singular shall be deemed to include the
plural, and vice versa, as the context may require. The words "hereof",
"herein" and "hereunder" and other words of similar import refer to this Third
Agreement as a whole, including the Annexes hereto, as the same may from time to
time be amended or supplemented, and not to any subdivisions contained in this
Third Agreement. The world "including" when used herein is not intended to be
exclusive and means "including, without limitation". References herein to
"dollars", "U.S.$" and "$" are to United States dollars. References herein to
Section, subsection or Annex shall refer to the appropriate Section, subsection
or Annex in or to this Third Agreement.
11.2 No adverse actions. PFEL agrees to take no action that could
materially adversely affect the business, operations or prospects of NSI.
11.3 Independent Contractors. It is expressly agreed that the parties
hereto are acting hereunder as independent contractors and not joint venturers,
and under no circumstances shall any of the employees of one party be deemed the
employees of the other for any purpose. This Third Agreement shall not be
construed as authority for either party to act for the other party in any agency
or other capacity, or to make commitments of any kind for the account of or on
behalf of the other except to the extent and for the purposes expressly provided
for and set forth herein.
11.4 Assignment; Sublicense. This Third Agreement is not assignable,
sublicensable, transferable or delegable by PFEL, in whole or in part, without
the express prior written consent of NSI. Any such permitted assignment,
sublicense, transfer or delegation of the rights, duties or obligations under
this Third Agreement shall be irrevocable except in the case of express prior
written consent of NSI. This Third
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Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns.
11.5 Waiver. No waiver by any party of any breach of any provision
hereof shall constitute a waiver of any other breach of that or any other
provision hereof.
11.6 Severability. If any provision of this Third Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
party or provision of this Third Agreement.
11.7 Choice of law. This Third Agreement and the performance hereunder
shall be governed by and construed in accordance with the laws of the State of
New York (without giving affect to principles of conflicts of laws).
11.8 Notice. All notices, invoices, consents or other communications
required or permitted to be given by either party to the other shall be in
writing (including facsimile or similar writing) and shall be given by certified
or registered mail, postage prepaid, with a copy by facsimile, as follows:
(a) If to NSI:
Neuromedical Systems, Inc.
Two Executive Boulevard
Suffern, New York 10901-4164
Attn: John B. Henneman, III
Co-CEO, Vice President of Corporate Development and General
Counsel
Facsimile: (914) 368-4068
(b) If to PFEL:
Papnet (Far East) Ltd.
C/O Dr. Stephen K.C. Ng, President
Papnet (Far East) Ltd.
2nd Floor, Zephyr House,
Mary Street, PO Box 709.
George Town, Cayman Islands
or at such other address or facsimile number (or other similar number) as any
party may from time to time specify to the other party hereto. Any notice,
consent or other communication required or permitted to be given hereunder shall
be deemed to have been given on the date of mailing, personal delivery or
facsimile (provided the appropriate answerback is received) thereof and shall be
conclusively presumed to have been received on the second business day following
the date of mailing or, in case of personal delivery,
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the actual day of personal delivery thereof, or, in the case of facsimile
delivery, when such facsimile is transmitted, except that a change of address
shall not be affective until actually received.
11.9 Entire Agreement. This Third Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all previous agreements, proposals, both oral and written,
negotiations, representations, commitments, writings and all other
communications between the parties, including, but not limited to, the Royalty
Agreement. It may not be released, discharged, changed or modified except by an
instrument in writing signed by a duly authorized representative of each of the
parties.
11.10 Headings. The headings used in this Third Agreement are for
reference purposes only and shall not be construed to limit or further define
any term or provisions hereof.
11.11 Counterparts. This Third Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Third Agreement
by a duly authorized representative as of the date first written above.
NEUROMEDICAL SYSTEMS, INC.
By: /s/ John B. Henneman, III
John B. Henneman, III
Co-CEO, Vice-President of Corporate Development,
Secretary and General Counsel
PAPNET (FAR EAST) LIMITED
By: /s/ Stephen K.C. Ng, M.D.
Stephen K.C. Ng, M.D.
President
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Exhibit 10.40
SUBLICENSE AGREEMENT
BETWEEN
NSI ASIA PACIFIC LTD.
AND
PAPNET (FAR EAST) LTD.
Dated as of September 30, 1997
<PAGE>
SUBLICENSE AGREEMENT
This SUBLICENSE, made this 30th day of September, 1997, (This "Sublicense
Agreement") by and between NSI Asia Pacific Ltd., a Cayman Islands corporation
("NSI-APL"), and PAPNET (Far East) Ltd., a Cayman Islands corporation ("PFEL").
WHEREAS, NSI-APL is a wholly owned subsidiary of Neuromedical Systems,
Inc., a Delaware corporation ("NSI");
WHEREAS, NSI has designed, developed and produces the PAPNET Testing System
("PAPNET" or "PAPNET Testing"), which is a semi-automated system for the review
of conventionally prepared cytological specimen slides ("Slides");
WHEREAS, PAPNET consists of a scanning system (the "Scanner"), which
processes Slides and stores digital images of certain portions of such Slides on
a DAT tape or other digital media ("PAPNET Images"), and a proprietary review
station (the "Review Station"), which, among other things, permits a NSI-trained
cytotechnologist to review the images stored on the DAT tape or other digital
media;
WHEREAS, NSI markets and sells PAPNET Testing as a service, by which end-
user laboratories submit Slides to one of NSI's central facilities for
processing on a Scanner, and NSI returns such Slides and related DAT tape or
other digital media containing PAPNET Images to such laboratories so that NSI-
trained cytotechnologists employed by such laboratories may review the Slides
and the related PAPNET Images using a licensed or leased Review Station
(collectively referred to as the "PAPNET Service");
WHEREAS, NSI and PFEL are parties to an agreement dated July 13, 1993
providing for, among other things, the representation of NSI in certain markets
by PFEL and the provision of the PAPNET Service to PFEL as an end-user
laboratory (the "First Agreement");
WHEREAS, NSI and PFEL are parties to an agreement dated May 27, 1994,
amending and restating the First Agreement, and providing for, among other
things, the representation of NSI in certain markets by PFEL and the provision
of the PAPNET Service to PFEL as an end-user laboratory (the "Second
Agreement");
WHEREAS, NSI-APL has acquired as of June 1, 1997 all of the issued and
outstanding stock of New System International Ltd., a Hong Kong corporation,
previously a wholly owned subsidiary of PFEL, and under the terms and conditions
of the Royalty Agreement Term Sheet, dated as of June 1, 1997 (the "Royalty
Agreement"), executed in connection with such acquisition, NSI and PFEL have
agreed to renegotiate the Second Agreement in accordance with the terms and
conditions set forth therein;
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WHEREAS, NSI and PFEL have executed as even date herewith an Amended and
Restated Representation Agreement (the "Third Agreement") in accordance with the
terms and conditions set forth in the Royalty Agreement, which supersedes and
replaces the Second Agreement;
WHEREAS, subject to the terms and conditions of the Third Agreement, NSI
has granted to PFEL a non-exclusive right and license to market, sell and
distribute the PAPNET Service (the "Representation Rights") in Hong Kong, Taiwan
and the People's Republic of China (the "Territory") for a term of fifteen (15)
years;
WHEREAS, PFEL now desires to assign and sublicense its Representation
Rights for the Territory to NSI-APL, and NSI-APL desires to acquire such
Representation Rights for the Territory.
NOW, THEREFORE, in consideration of the mutual promises and upon the terms
and subject to the conditions set forth herein, the parties agree as follows:
1. Assignment of Representation and Marketing Rights.
1.1 Representation Rights. Upon the terms and subject to the conditions
of this Sublicense Agreement, PFEL hereby assigns exclusively to NSI-APL during
the Term hereof (as defined in Section 10 herein) any and all of PFEL's
Representation Rights with respect to the PAPNET Service in the Territory to the
full extent granted by NSI to PFEL pursuant to the Third Agreement.
1.2 Intellectual Property. PFEL hereby assigns to NSI-APL any and all of
its non-exclusive intellectual property rights, for the limited purpose of NSI-
APL's marketing and sale of the PAPNET(R) Service, the copyrights, trademarks
and trade names used by NSI to identify PAPNET(R) or the PAPNET Service in
accordance with such written specifications as NSI may from time to time make
available to NSI-APL. NSI-APL agrees to comply with NSI's prevailing policies
regarding use of NSI's copyrights, trademarks and trade names used by NSI's
distributors and representatives, as such policies may be amended from time to
time. NSI-APL shall not use NSI's copyrights, trademarks or trade names in a
disparaging manner. Except as authorized in this Section 1.2, NSI-APL shall
not otherwise use NSI's copyrights, trademarks or trade names without the prior
written approval of NSI. NSI-APL shall not take any action which is
inconsistent with NSI's ownership of its copyrights, trademarks and trade names.
NSI agrees to include correct trademark, trade name, copyright, trade secrets
and patent notices for the PAPNET System and the PAPNET Service on all materials
and equipment where appropriate. NSI-APL shall not remove, alter, cover,
obfuscate or otherwise deface any NSI trademark, trade name, patent, trade
secret or copyright notice on the PAPNET System or any part thereof or any
promotion or advertising material used in conjunction with or for the PAPNET
System or the PAPNET Service.
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1.3 Nature of appointment. Nothing contained in this Sublicense
Agreement shall (i) prohibit NSI from making, using, licensing, distributing,
selling or granting any other rights in and to PAPNET in the Territory, or (ii)
operate to grant NSI-APL any rights in or to any product or service offered by
NSI or PFEL other than its rights expressly provided by this Sublicense
Agreement.
1.4 Field of use restriction. Except as otherwise contemplated by this
Sublicense Agreement, NSI-APL shall not market, distribute, sell or license, or
permit any third party to market, distribute, sell or license, the PAPNET
Service to any third party located outside of the NSI-APL Territory other than
as permitted by NSI. NSI-APL shall not, or shall not permit any third party
to, encourage uses of PAPNET other than as permitted by NSI.
1.5 Regulatory approval. NSI-APL shall not market the PAPNET Service
in a particular jurisdiction unless and until all regulatory approvals, licenses
and permits required by such jurisdiction or any court of competent
jurisdiction, governmental body or regulatory agency (a "Governmental Body"), if
any, have been obtained. NSI-APL, at its sole cost and expense, shall prepare
and submit any and all appropriate applications, data and other information
required by such jurisdiction or Governmental Body to obtain all regulatory
approvals, licenses and permits in such jurisdictions. NSI shall assist NSI-APL
in filing all required documents with, and in obtaining any necessary approvals,
permits or licenses from, any applicable Governmental Body.
1.6 Governmental restrictions. In the event that any Governmental Body
restricts or prohibits the marketing, distribution, provision or licensing of
the PAPNET Service or PAPNET, NSI-APL's rights hereunder shall be subject to and
limited by any such restriction or prohibition without liability to NSI or PFEL
of any type or nature except as expressly provided herein to the contrary.
1.7 Marketing. NSI-APL hereby expressly assumes PFEL's marketing
obligations under the Third Agreement, and, at its expense will develop and
implement a comprehensive marketing and sales program to promote successfully
the PAPNET Service in the Territory. NSI-APL will develop, on an annual basis,
market plans for each major segment of the Territory. These plans will be
subject to review by NSI. Each plan will include an outline of NSI-APL's
strategic objectives for the marketing of PAPNET in such Territory, as well as
the specific steps NSI-APL proposes to execute.
2. Consideration.
2.1 Royalties for Sales in the Territory. In consideration of the
Representation Rights assigned hereunder, NSI-APL will pay PFEL a royalty
expressed as a specified percentage of NSI-APL's consolidated revenues derived
from PAPNET(R) Testing System Slides which originate in the Territory (the "Base
Consolidated Revenue"), provided, however, that the Base Consolidated Revenue
------------------
shall not include revenues derived from the processing of Slides within the
Territory with respect to Slides which originate from
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geographic areas outside the Territory (for example, Slides originating in
Australia and processed in the NSI Hong Kong scanning facility shall not be
included in the calculation of Base Consolidated Revenue). The "specified
percentage" referred to in the first sentence of this Section 2.1 will be 4% of
Base Consolidated Revenue per year during the first four years until the fourth
anniversary of the date hereof, and 3% of Base Consolidated Revenue per year for
each of the following eleven (11) years after the fourth anniversary of the date
hereof (collectively, the "Royalties"), in each case as set forth on the
attached Annex A. Notwithstanding the foregoing provisions of this Section 2.1,
any Royalties payable from the consolidated revenues from the Territory, shall
include revenues originating in Taiwan only from and after the closing of the
purchase of substantially all of the assets of New System Taiwan Ltd. by NSI-
APL (or a duly delegated affiliate).
2.2 Timing and manner of payment of Royalties. Royalties will be paid
by NSI-APL to PFEL within fifteen (15) days of the last day of the calendar
quarter in which the applicable revenues are actually received by NSI-APL. Such
payment of Royalties shall be accompanied by a statement setting forth the
calculation thereof. Any other provision of this Sublicense Agreement
notwithstanding, PFEL shall not be entitled to receive any Royalties with
respect to which NSI-APL has not actually received payment of the related
revenues.
2.3 Right to verify the calculation of Royalties. NSI-APL will maintain
records and bank statements for the purpose of calculating Base Consolidated
Revenues received by NSI-APL from clients in the Territory. PFEL will have the
right to inspect such records and NSI-APL will provide upon request such other
information as may be reasonably requested by PFEL to confirm the calculation of
the Royalties paid by NSI-APL to PFEL pursuant to this Sublicense Agreement.
3. Representations and Warranties of NSI-APL.
NSI-APL hereby represents and warrants to PFEL as follows:
3.1 Organization. NSI-APL is a corporation duly organized, validly
existing and in good standing under the laws of Cayman Islands. NSI-APL has the
corporate power to own or lease its properties and assets and to carry on its
business as now conducted.
3.2 Authority relative to this Sublicense Agreement. NSI-APL has the
right, power and authority to enter into this Sublicense Agreement and to
perform all of its obligations hereunder. This Sublicense Agreement has been
authorized by all necessary corporate action, has been duly executed and
delivered, and constitutes the valid and binding obligation of NSI-APL,
enforceable in accordance with its terms.
3.3 No Conflicts; No Consents. The execution, delivery and performance
of this Sublicense Agreement will not result in a breach in the terms or
conditions of, or
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constitute a default under, or violate, or conflict with, or require, as the
case may be: (i) any provision of any law, regulation or ordinance, (ii) the
charter and organizational documents of NSI-APL, (iii) any agreement, lease,
mortgage or other instrument or undertaking, oral or written, to which NSI-APL
is a party or by which it or any of its properties or assets is or may be bound
or affected, (iv) any judgment, order, writ, injunction or decree of any
Governmental Body, or (v) any action of or by, or filing with, any Governmental
Body. To the knowledge of NSI-APL, the execution and delivery of this
Sublicense Agreement does not and, except for any approvals, permits and
licenses required to market the PAPNET Service in the Territory, the performance
of this Sublicense Agreement will not, require any action, consent or approval
of any person, entity or Governmental Body.
3.4 Litigation. There is no pending or, to the knowledge of NSI-APL,
threatened, legal, administrative, arbitration or other proceeding or
governmental investigation which is likely to have a material adverse effect on
NSI or the performance by NSI-APL of this Sublicense Agreement.
4. Representations and Warranties of PFEL.
PFEL hereby represents and warrants to NSI-APL as follows:
4.1 Organization. PFEL is a corporation duly organized, validly
existing and in good standing under the laws of the Cayman Islands. PFEL has
the corporate power to own or lease its properties and assets and to carry on
its business as now conducted.
4.2 Authority relative to this Sublicense Agreement. PFEL has the
right, power and authority to enter into this Sublicense Agreement and to
perform all of its obligations hereunder. This Sublicense Agreement has been
authorized by all necessary corporate action, has been duly executed and
delivered, and constitutes the valid and binding obligation of PFEL, enforceable
in accordance with its terms.
4.3 No Conflicts: No Consents. The execution, delivery and performance
of this Sublicense Agreement will not result in a breach in the terms or
conditions of, or constitute a default under, or violate, or conflict with, or
require, as the case may be: (i) any provision of any law, regulation or
ordinance, (ii) the Certificate of Incorporation or Bylaws of PFEL, (iii) any
agreement, lease, mortgage or other instrument or undertaking, oral or written,
to which PFEL is a party or by which it or any of its properties or assets is or
may be bound or affected, (iv) any judgment, order, writ, injunction or decree
of any Governmental Body, or (v) any action of or by, or filing with, any
Governmental Body. To the knowledge of PFEL, the execution and delivery of this
Sublicense Agreement does not, and except for any foreign approvals, permits and
licenses required to market the PAPNET Service in the PFEL Territory, the
performance of this Sublicense Agreement will not, require any action, consent
or approval of any person, entity or Governmental Body.
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4.4 Litigation. There is no pending or, to the knowledge of PFEL,
threatened, legal, administrative, arbitration or other proceeding or
governmental investigation which is likely to have a material adverse effect on
PFEL or the performance by PFEL of this Sublicense Agreement.
5. Additional Covenants.
5.1 Further Assurances. Each of NSI, PFEL and NSI-APL covenant that
they shall, at any time during the Term of this Sublicense Agreement, take any
further action that is reasonably necessary or desirable to carry out the
purposes of this Sublicense Agreement and the transactions contemplated hereby,
as may be determined in the reasonable discretion of the requesting party, and
the other party, or parties as the case may be, will take any and all such
further action thereof, including the execution and delivery of any further
instruments and documents. NSI shall cause NSI-APL to fully perform its
respective duties and obligations under the terms of this Sublicense Agreement
and/or any delegation to NSI-APL of the duties required by NSI under the Third
Agreement. NSI further covenants, and shall cause NSI-APL and their respective
direct and/or indirect subsidiaries to covenant, that PFEL shall receive
substantially the same consideration as it would otherwise receive under this
Sublicense for use of the PAPNET(R) Testing System in any part of the Territory
in the event that NSI or any of its subsidiaries assigns, transfers or
sublicenses any other NSI marketing and/or sales rights to any third party for
use of the PAPNET(R) Testing System in any part of the Territory.
5.2 Business Practice. PFEL shall not solicit or take any action that is
designed or intended to have the effect of discouraging any PAPNET(R) Testing
System customer, supplier, or other business associate from maintaining the same
business relationships after execution hereof as PFEL maintained prior to such
date.
5.3 Exclusivity. Except for the rights granted exclusively to NSI-APL
under this Sublicense Agreement and except as expressly permitted in writing by
NSI-APL, PFEL will not assign, transfer, license or sublicense, or convey in any
manner, to any person or entity, any other rights under the Third Agreement.
6. Limitations on Warranties and Limitation of Liability.
6.1 No warranties. Except as otherwise provided herein, PFEL makes no
representations or warranties with respect to the PAPNET System or the PAPNET
Service, express or implied, including, but not limited to, implied warranties
of merchantability and fitness for a particular purpose or that the PAPNET
System or the PAPNET Service as developed and designed will met any requirements
of or will perform error free or in conformance with the needs or requirements
of NSI-APL or any NSI-APL customer.
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6.2 Limitation of liability. Except as provided in Section 8 herein, PFEL
and NSI-APL, as the case may be, shall have no liability with respect to their
respective obligations under this Sublicense Agreement or otherwise for
indirect, special, incidental, consequential, punitive or exemplary damages,
whether in contract, in tort or otherwise, including, but not limited to, loss
of use, revenue or profit, even if PFEL or NSI-APL, as the case may be, has
been advised of the possibility of such damages, provided, however, that NSI-APL
agrees to indemnify and hold PFEL free and harmless from and against any
liabilities, damages, losses, costs and expenses, including reasonable
attorney's fees incurred by PFEL due to the negligence of NSI-APL in handling
and scanning of Pap smear slides. In no event shall PFEL's or NSI-APL's
liability, as the case may be, for any reason and upon any cause of action
arising from or relating to this Sublicense Agreement exceed the gross revenues
derived by PFEL or NSI-APL, as the case may be, from this Sublicense Agreement
for the twelve (12) month period immediately preceding the date such cause of
action was commenced; provided, that nothing herein shall be construed to limit
injunctive relief as may be ordered by any court or arbitrator.
7. Ownership and Intellectual Property Protection.
7.1 Ownership of PAPNET System. NSI-APL acknowledges and agrees that
NSI is the sole and exclusive owner of all current and future worldwide patents
and patent rights, copyrights, trademarks, trade names, trade secrets, know-how,
utility models and other intellectual property rights (including without
limitation, all applications and registrations with respect thereto) in and to
the PAPNET System or the PAPNET Service (the "Intellectual Property") embodied
in the PAPNET System, all information, materials, clinical and test data reports
and filings produced in connection with any required regulatory approvals,
permits and licenses, and all information, reports, specifications, source code,
object code, documentation, diagrams, flow charts and any other tangible or
intangible materials of any type whatsoever relating to the PAPNET System and
derived or produced by any parties (collectively the "Proprietary Materials").
No provision contained in this Sublicense Agreement shall be construed to
transfer to NSI-APL any title or ownership interest in the Proprietary Materials
or any Intellectual Property embodied in the PAPNET System or the PAPNET
Service. NSI-APL hereby irrevocably assigns, transfers and quitclaims to NSI
all rights, title and interest NSI-APL may at any time be deemed to have in and
to the PAPNET System and all associated Intellectual Property and Proprietary
Material thereof.
7.2 Scope of use. NSI-APL shall not, and shall not permit any third
party to, (a) modify or alter, create or attempt to create, by reverse
engineering or otherwise, translate or decompile, translate or transfer, or
otherwise attempt to derive the source code, structure or algorithms of, the
PAPNET System or any part thereof, (b) use or adapt the PAPNET System or any
part thereof in any way, including using or adapting the PAPNET System or any
part thereof otherwise than in connection with the marketing or sale of the
PAPNET Service, (c) use the PAPNET System or any part thereof to create a
derivative work of the PAPNET System, or (d) rent, lease or otherwise provide
temporary access to the PAPNET System or any part thereof. Unless
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otherwise agreed to, in the event that NSI, in its sole discretion, provides any
modification, upgrades or enhancements to the PAPNET System, such modifications
shall become a part of, and subject to, this Sublicense Agreement.
7.3 Control of Intellectual Property protection. NSI shall at all times
retain the sole and exclusive right to pursue, secure, maintain, protect and
enforce its Intellectual Property in and to, or arising out of or related to,
the PAPNET System.
7.4 PAPNET System name. NSI shall have the right in its sole discretion
to select and include any trademark or trade name to identify the PAPNET System.
7.5 Protection of Intellectual Property. NSI-APL shall use its best
efforts, and shall cause clients to use their best efforts, to protect and
maintain the protection of the Intellectual Property in and to the PAPNET System
or the PAPNET Service. Upon NSI's request, NSI-APL shall, at NSI's sole cost
and expense, assist NSI-APL in securing, maintaining and enforcing NSI's
Intellectual Property in and to the PAPNET System or the PAPNET Service
including, but not limited to, undertaking any and all necessary and appropriate
actions in accordance with NSI's request.
7.6 Notice of infringement. NSI-APL shall promptly notify, and shall
require clients to notify, NSI of any infringement of any Intellectual Property
of NSI with respect to the PAPNET System or the PAPNET Service. Upon reasonable
notice of infringement, NSI shall have the right, but not the obligation, to
bring any suit or action for infringement of its Intellectual Property at its
own expense. NSI-APL shall, if requested by NSI, actively assist in the
prosecution of such action. In the event that NSI fails to take action with
respect to such infringement within a reasonable time after notice of
infringement, NSI-APL shall have the right to bring any appropriate suit or
action against the infringer at NSI-APL expense. In the event NSI-APL brings
and prevails in such infringement action, any amount recovered from the
infringer, whether by judgment, award, decree or settlement shall firstly be
applied to pay for all losses and damages suffered by NSI-APL together with all
reasonable legal costs and expenses incurred in such action, any balance
thereafter be divided equally between NSI-APL and NSI.
8. Indemnification.
8.1 Indemnification. NSI-APL or PFEL, as the case may be (the
"Indemnifying Party"), shall, at its sole cost and expense, indemnify and hold
NSI-APL or PFEL and their respective directors, officers, employees, agents,
representatives and affiliates (each, an "Indemnified Party") harmless with
respect to any liabilities, damages, loses, costs and expenses, including
reasonable attorney's fees (any or all of the foregoing being hereinafter
referred to as a "Loss"), insofar as such Loss arises out of or is based upon:
(i) a misrepresentation or breach (or alleged misrepresentation or breach) by
the Indemnifying Party of its warranties, covenants and agreements contained
herein, or (ii) a claim that the PAPNET System or the PAPNET Service, as the
case may be, as used
-9-
<PAGE>
within the scope of this Sublicense Agreement, infringes or violates any
proprietary rights of any third party.
8.2 Notice of claim; defense. No claim for indemnification hereunder
shall be valid unless notice of the matter which may give rise to such claim is
promptly provided to the Indemnifying Party in writing. The Indemnifying Party
shall have the exclusive right to defend against any claim and control such
defense. The Indemnified Party shall cooperate with the Indemnifying Party in
defending against such claim. In no event shall the Indemnified Party settle
any such claim, lawsuit or proceeding without the Indemnifying Party's prior
written approval.
8.3 Infringement. If, as a result of any such claim of infringement, PFEL
or NSI-APL is permanently enjoined from selling the PAPNET Service or using the
PAPNET(R) System, as the case may be, by a final, nonappealable decree, of a
court of competent jurisdiction, (i) NSI-APL at its sole option and expense, may
procure from NSI the right to continue to sell the PAPNET Service or use the
PAPNET System that is subject to such decree or may replace or modify the PAPNET
System or PAPNET Service so that the PAPNET Service or PAPNET System is non-
infringing, (ii) NSI-APL may terminate this Sublicense Agreement with respect to
the PAPNET Service or PAPNET(R) System, as the case may be, that is subject to
such decree, or (iii) if PFEL is enjoined from marketing and distributing the
PAPNET Service, NSI-APL may terminate this Sublicense Agreement in accordance
with Section 10 hereof. The foregoing states the entire liability of PFEL or
NSI-APL, as the case may be, to the other with respect to infringement of any
proprietary rights of any third party, and PFEL and NSI-APL hereby expressly
waive any other such liabilities that each may have against the other and its
directors, officers, employees, agents, representatives and affiliates.
9. Confidentiality.
9.1 Confidentiality. During the term of this Sublicense Agreement and
thereafter, each of NSI-APL and PFEL shall keep strictly confidential all
proprietary information, sales statistics, customer lists, customer account
information, this Sublicense Agreement and its terms and other confidential
information concerning the business of the other party, however obtained, and
shall not reveal or disclose the same to any person or entity without the prior
written consent of the other party; provided, however, that either party may
-------- -------
disclose such information pursuant to a subpoena, order, statute, rule or other
legal requirement promulgated or imposed by a court or by a judicial, regulatory
or legislative body or agency in which such party is involved; and provided,
--------
further, that either party may disclose the terms of this Sublicense Agreement
- -------
to the extent its counsel determines in good faith that such disclosure is
necessary to comply with applicable securities laws. In the event that either
party discloses such confidential information in accordance with the previous
sentence, such party shall immediately notify the other party.
-10-
<PAGE>
10. Term.
10.1 Term. The term of this Sublicense Agreement shall commence on the
date first set forth above and terminate at the end of the fifteenth (15th) year
from the date of execution hereof (the "Term") unless terminated on an earlier
date as provided below in this Section 10.
10.2 Termination Fee. In the event of cessation of business related to
the Representation Rights by NSI-APL or its affiliates in the entirety of the
Territory prior to the end of the Term, a termination fee shall be due and
payable to PFEL by NSI-APL in an amount equal to US$800,000 (the "Termination
Fee"), provided, however, that payment of the Termination Fee shall be
--------- -------
subordinate to all other creditors of NSI-APL, including, but limited to, any
interest due with regard to any indebtedness thereto, and further provided that
------- --------
the Termination Fee shall diminish in amount equal to the aggregate amount of
Royalties received by PFEL (for example, if the business of NSI-APL terminated
at the end of year one, and as of such date PFEL had received an aggregate of
US$200,000 in royalties from NSI-APL, the Termination Fee would be reduced by
US$200,000).
10.3 Purchase Option. During the period commencing four years after
execution of this Sublicense Agreement, and ending eight years after such
execution, as set forth on the attached Annex A, PFEL may, at its option,
require NSI-APL to purchase the entirety of PFEL's interest as a party to the
Third Agreement (including any and all rights obtained by assignment or
sublicense thereof) for an aggregate price equal to five times the trailing
year's Royalty (the "Purchase Option" and the price paid pursuant thereto, the
"Purchase Price"). The Purchase Price may be payable at the option of NSI-APL
in either cash or in NSI common stock, par value $.0001 per share ("Common
Stock"). For purposes of this provision, "trailing year" shall mean the most
recent twelve (12) month period measured at the end of the most recently
completed calendar quarter (for example, if PFEL exercises the Purchase Option
at the end of the second (2nd)calendar quarter during year six of this
Sublicense Agreement, the Purchase Price would be five (5) times the amount of
Royalties recorded as paid or payable during the twelve (12) month period
immediately preceding the end of the second (2nd) calendar quarter of year six
(6)). If the Purchase Price is paid in NSI Common Stock, (i) the value of the
NSI Common Stock will be determined based on the average closing price of the
Common Stock on the most recent thirty (30) calendar days immediately prior to
the exercise date of such Purchase Option; (ii) PFEL shall execute a
Subscription Agreement substantially in the form set forth in the attached Annex
B and (iii) PFEL shall execute a Registration Rights agreement substantially in
the form set forth in the attached Annex C and NSI shall provide registration
rights with respect to such NSI Common Stock in accordance with the terms
thereunder. The Termination Fee shall not be due or payable if the Purchase
Option is exercised by PFEL. Exercise and consummation of the Purchase Option
shall terminate this Sublicense Agreement. For purposes of clarity, this
Purchase Option may only be exercised by PFEL and not by NSI or NSI-APL.
-11-
<PAGE>
10.4 Termination.
(a) This Sublicense Agreement shall be terminated prior to the end of the
Term upon performance by NSI-APL of its duties and obligations in accordance
with the terms of paragraphs 10.2 or 10.3.
(b) Except as otherwise provided in this Sublicense Agreement, this
Sublicense Agreement may be terminated by NSI-APL without notice to PFEL or
further action on the part of NSI-APL, upon the occurrence of any of the
following events: (i) the liquidation, dissolution, winding up or other
termination, suspension, discontinuation or failure of the business of PFEL;
(ii) the insolvency of or admission by PFEL of its failure to pay debts as they
mature, the making by PFEL of an assignment for the benefit of its creditors or
the filing by PFEL of a petition in bankruptcy, the seeking by PFEL of
reorganization or arrangement with creditors or PFEL otherwise taking advantage
of any insolvency, readjustment of debt, dissolution or liquidation law, or any
similar law, of any jurisdiction whether now or hereafter in effect; (iii) upon
PFEL being declared bankrupt or wound up by any court of competent jurisdiction;
(iv) if PFEL is enjoined at any time from marketing and distributing the
PAPNET(R) Service, or assigning and/or sublicensing its rights under the Third
Agreement or delegating its duties and obligations undertaken thereby; (v) any
assignment, sublicense, delegation, or any other transfer, in whole or in part,
of the Third Agreement by PFEL without the express prior written consent of NSI;
or (vi) upon termination of the Third Agreement by reason of the default of
PFEL.
(c) Except as otherwise provided in this Sublicense Agreement, this
Sublicense Agreement may be terminated by PFEL without notice to NSI-APL OR
further action on the part of PFEL, upon the occurrence of any of the following
events (each, an "NSI-APL Termination Event"): (i) The liquidation, dissolution,
winding up or other termination, suspension, discontinuation or failure of the
business of NSI-APL or its efforts to market the PAPNET Service; (ii) the
insolvency of or admission by NSI-APL of its failure to pay debts as they
mature, the making by NSI-APL of an assignment for the benefit of its creditors
or the filing by NSI-APL of a petition in bankruptcy, the seeking by NSI-APL of
reorganization or arrangement with creditors or NSI-APL otherwise taking
advantage of any insolvency, readjustment of debt, dissolution or liquidation
law of any jurisdiction whether now or hereafter in effect; or (iii) the filing
of any bankruptcy petition against NSI-APL, which petition is not dismissed
within sixty (60) days. Termination of this sublicense agreement due to an nsi-
apl termination event shall not absolve or excuse performance of NSI-APL'S
duties and obligations in accordance with SECTIONS 10.2 OR 10.3.
(D) Except as otherwise provided herein, the termination of this
Sublicense AGREEMENT (whether pursuant to Section 10.4 or upon the expiration of
the Term) or any part hereof by either party shall not relieve either party of
any obligations accruing prior to such termination. The representations,
warranties, covenants and agreements of NSI and PFEL set forth herein shall
survive any such termination.
-12-
<PAGE>
11. Arbitration.
11.1 Arbitration. Except as otherwise provided herein, the parties
hereto agree that the sole and exclusive remedy for any dispute between the
parties arising out of or relating to this Sublicense Agreement shall be
resolved by an arbitration procedure conducted in The City of New York, Borough
of Manhattan in accordance with the rules then obtaining of the American
Arbitration Association, except that the arbitrators shall have no power to
alter or modify any express provision of this Sublicense Agreement, or to render
any award which by its terms, effects any such alteration or modification.
Judgment upon the award rendered may be entered by any court having jurisdiction
in the State of New York. If any action or proceeding is brought to enforce the
decision of the arbitrators, the prevailing party shall be entitled to recover
its reasonable attorney's fees and other costs incident to such action or
proceeding. The provisions of this Section 11 shall not affect the right of any
party to seek provisional legal or equitable remedies.
12. Miscellaneous.
12.1 Rules of Construction. As used in this Sublicense Agreement,
neutral pronouns and any variations thereof shall be deemed to include the
feminine and masculine and all terms used in the singular shall be deemed to
include the plural, and vice versa, as the context may require. The words
"hereof", "herein" and "hereunder" and other words of similar import refer to
this Sublicense Agreement as a whole, including the Annexes hereto, as the same
may from time to time be amended or supplemented, and not to any subdivisions
contained in this Sublicense Agreement. The world "including" when used herein
is not intended to be exclusive and means "including, without limitation".
References herein to "dollars", "U.S.$" and "$" are to United States dollars.
References herein to Section, subsection or Annex shall refer to the appropriate
Section, subsection or Annex in or to this Sublicense Agreement.
12.2 No adverse actions. PFEL agrees to take no action that could
materially adversely affect the business, operations or prospects of NSI-APL.
12.3 Independent Contractors. It is expressly agreed that the parties
hereto are acting hereunder as independent contractors and not joint venturers,
and under no circumstances shall any of the employees of one (1) party be deemed
the employees of the other for any purpose. This Sublicense Agreement shall not
be construed as authority for either party to act for the other party in any
agency or other capacity, or to make commitments of any kind for the account of
or on behalf of the other except to the extent and for the purposes expressly
provided for and set forth herein.
12.4 Assignment; Sublicense. The rights, duties and obligations of NSI-
APL under the terms and conditions of this Sublicense Agreement, are not further
assignable, sublicensable, transferable or delegable by NSI-APL without the
prior written consent of NSI and PFEL. The rights, duties and obligations of
PFEL under the terms and conditions of this Sublicense Agreement are not
assignable, sublicensable, transferable or
-13-
<PAGE>
delegable without the prior written consent of NSI and NSI-APL. This
Sublicense Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns.
12.5 Waiver. No waiver by any party of any breach of any provision
hereof shall constitute a waiver of any other breach of that or any other
provision hereof.
12.6 Severability. If any provision of this Sublicense Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
party or provision of this Sublicense Agreement.
12.7 Choice of law. This Sublicense Agreement and the performance
hereunder shall be governed by and construed in accordance with the laws of the
State of New York (without giving affect to principles of conflicts of laws).
12.8 Notice. All notices, invoices, consents or other communications
required or permitted to be given by either party to the other shall be in
writing (including facsimile or similar writing) and shall be given by certified
or registered mail, postage prepaid, with a copy by facsimile, as follows:
(a) If to NSI:
Neuromedical Systems, Inc.
Two Executive Boulevard
Suffern, New York 10901-4164
John B. Henneman, III
Co-CEO, Vice President of Corporate Development and General Counsel
Facsimile: (914) 368-4068
-14-
<PAGE>
(a) If to NSI-APL:
Neuromedical Systems, Inc.
Two Executive Boulevard
Suffern, New York 10901-4164
John B. Henneman, III
Co-CEO, Vice President of Corporate Development and General Counsel
Facsimile: (914) 368-4068
(b) If to PFEL:
Papnet (Far East) Ltd.
C/O Dr. Stephen K.C. Ng, President
Papnet (Far East) Ltd.
2nd Floor, Zephyr House,
Mary Street, PO Box 709.
George Town, Cayman Islands
or at such other address or facsimile number (or other similar number) as any
party may from time to time specify to the other party hereto. Any notice,
consent or other communication required or permitted to be given hereunder shall
be deemed to have been given on the date of mailing, personal delivery or
facsimile (provided the appropriate answerback is received) thereof and shall be
conclusively presumed to have been received on the second business day following
the date of mailing or, in case of personal delivery, the actual day of personal
delivery thereof, or, in the case of facsimile delivery, when such facsimile is
transmitted, except that a change of address shall not be affective until
actually received.
12.9 Entire Agreement. This Sublicense Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all previous proposals, both oral and written, negotiations,
representations, commitments, writings and all other communications between the
parties, including, but not limited to, the Royalty Agreement. It may not be
released, discharged, changed or modified except by an instrument in writing
signed by a duly authorized representative of each of the parties.
12.10 Headings. The headings used in this Sublicense Agreement are for
reference purposes only and shall not be construed to limit or further define
any term or provisions hereof.
12.11 Counterparts. This Sublicense Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Sublicense
Agreement by a duly authorized representative as of the date first written
above.
NSI ASIA PACIFIC LTD.
By: /s/ John B. Henneman, III
John B. Henneman, III
Vice President
PAPNET FAR EAST LIMITED
By: /s/ Stephen K.C. Ng, M.D.
Stephen K.C. Ng, M.D.
President
-16-
<PAGE>
Annex A
<TABLE>
<CAPTION>
Contract Purchase
Year Effective Date Royalty Option Periods
<S> <C> <C> <C>
Year 1 September 30, 1997-September 29, 1998 4% of Base Consolidated
Revenue
Year 2 September 30, 1998-September 29, 1999 4% of Base Consolidated
Revenue
Year 3 September 30, 1999-September 29, 2000 4% of Base Consolidated
Revenue
Year 4 September 30, 2000-September 29, 2001 4% of Base Consolidated
Revenue
Year 5 September 30, 2001-September 29, 2002 3% of Base Consolidated Purchase Option Period
Revenue
Year 6 September 30, 2002-September 29, 2003 3% of Base Consolidated Purchase Option Period
Revenue
Year 7 September 30, 2003-September 29, 2004 3% of Base Consolidated Purchase Option Period
Revenue
Year 8 September 30, 2004-September 29, 2005 3% of Base Consolidated Purchase Option Period
Revenue
Year 9 September 30, 2005-September 29, 2006 3% of Base Consolidated
Revenue
Year 10 September 30, 2006-September 29, 2007 3% of Base Consolidated
Revenue
Year 11 September 30, 2007-September 29, 2008 3% of Base Consolidated
Revenue
Year 12 September 30, 2008-September 29, 2009 3% of Base Consolidated
Revenue
Year 13 September 30, 2009-September 29, 2010 3% of Base Consolidated
Revenue
Year 14 September 30, 2010-September 29, 2011 3% of Base Consolidated
Revenue
Year 15 September 30, 2011-September 29, 2012 3% of Base Consolidated
Revenue
</TABLE>
-17-
<PAGE>
CONSENT
WHEREAS, Neuromedical Systems, Inc., a Delaware corporation ("NSI") and
PAPNET (Far East) Ltd., a Cayman Islands corporation ("PFEL") have executed as
of even date herewith an Amended and Restated Representation Agreement (the
"Third Agreement") granting to PFEL a non-exclusive right and license to market,
sell and distribute certain PAPNET Services (the "Representation Rights") in
Hong Kong, Taiwan and the People's Republic of China (the "Territory") for a
term of fifteen (15) years;
WHEREAS, PFEL now desires to assign and sublicense its Representation
Rights for the Territory to NSI Asia Pacific Ltd., a Cayman Islands corporation
("NSI-APL"), and NSI-APL desires to acquire such Representation Rights for the
Territory.
WHEREAS, the Third Agreement is not assignable, sublicensable, transferable
or delegable by PFEL, in whole or in part, without the express prior written
consent of NSI.
NOW, THEREFORE, NSI hereby acknowledges and consents to the assignment and
sublicense of the Third Agreement upon the terms and conditions of the
Sublicense Agreement between NSI-APL and PFEL, dated as of even date herewith,
in the form attached hereto.
NEUROMEDICAL SYSTEMS, INC.
By: /s/ John B. Henneman, III September 30, 1997
John B. Henneman, III Date
Co-CEO, Vice-President, Secretary
and General Counsel
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<PAGE>
Exhibit 10.41
-------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of the 4th day of November, 1997, by and
between NEUROMEDICAL SYSTEMS, INC., a Delaware corporation with principal
executive offices at Two Executive Boulevard, Suffern, New York 10901-4114
("NSI"), and PAUL SOHMER residing at ____________________________________
___________ (the "Employee").
W I T N E S S E T H :
WHEREAS, NSI is desirous of employing the Employee as President and Chief
Executive Officer of NSI, and the Employee is desirous to serve NSI in such
capacity, all upon the terms and subject to the conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment.
----------
NSI agrees to employ the Employee, and the Employee agrees to be employed
by NSI, upon the terms and subject to the conditions of this Agreement.
2. Term.
----
The employment of the Employee by NSI as provided in Section 1 will be for
the period commencing on the date hereof (the "Commencement Date") and ending on
the third anniversary of the Commencement Date (the "Term"); provided, however,
on the third anniversary of the Commencement Date and on each anniversary
thereafter, the Term shall be automatically extended for an additional period of
one (1) year, unless either party gives written notice to the other at least
ninety (90) days prior thereto that the Term of this Agreement shall not be so
extended, provided, further, however, that the Term may be earlier terminated as
hereinafter provided.
3. Duties; Best Efforts; Indemnification.
-------------------------------------
The Employee shall serve as the President and Chief Executive Officer of
NSI and shall perform and discharge well and faithfully the duties which may
from time to time be prescribed by the Board of Directors of NSI ( the "Board").
During the Term, NSI shall nominate the Employee for election to, and use its
best efforts to cause the Employee to be
<PAGE>
elected to the Board. The Employee shall devote all of his business time,
attention and energies to the business and affairs of NSI, shall use his best
efforts to advance the best interests of NSI and shall not during the Term be
actively engaged in any other business activity, whether or not such business
activity is pursued for gain, profit or other pecuniary advantage.
Subject to the provisions of NSI's Certificate of Incorporation and Bylaws,
each as amended from time to time, NSI shall indemnify the Employee to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as amended from time to time, for all amounts (including without
limitation, judgments, fines, settlement payments, expenses and attorney's fees)
incurred or paid by the Employee in connection with any action, suit,
investigation or proceeding arising out of or relating to the performance by the
Employee of services for, or the acting by the Employee as an officer or
employee of, NSI, or any other person or enterprise at NSI's request; provided,
however, that NSI shall not be required to indemnify the Employee against any
liability resulting from conduct which is willful, intentional or grossly
negligent. NSI shall use its best efforts to obtain and maintain in full force
and effect during the Term directors' and officers' liability insurance policies
providing full and adequate protection to the Employee for his capacities,
provided that the Board shall have no obligation to purchase such insurance if,
in its opinion, coverage is available only on unreasonable terms.
4. Compensation and Benefits.
-------------------------
(a) Base Salary. NSI shall pay to the Employee a base salary (the "Base
-----------
Salary") at a rate of not less than $350,000 per annum, payable in accordance
with NSI's ordinary payroll practices as in effect from time to time during the
Term. The Board at least annually will review the Base Salary and other
compensation during the Term with a view to the increase thereof based upon the
Employee's performance, the performance of NSI, inflation, then prevailing
industry salary scales and other relevant factors. Base Salary will not include
any bonus paid to the Employee from time to time.
(b) Bonus. In respect of each fiscal year beginning during the Term, the
-----
Employee shall have the opportunity to earn a bonus of up to 50% of his annual
Base Salary (the "Bonus") upon the attainment of financial or other performance
goals mutually agreed to by the Employee and the Board not later than 90 days
after the commencement of the applicable fiscal year; provided, however, that
for the 1998 fiscal year, the Employee shall be entitled to receive a Bonus of
$175,000 without regard to performance; provided, further, however, that any
bonus payable in respect of a fiscal year that ends after the Term shall be
prorated based on the portion of the fiscal year that has elapsed during the
Term. Any bonus payable hereunder shall be paid in accordance with NSI's
practice with respect to the payment of bonuses to its other senior executives.
(c) Stock Options. As of the Commencement Date, NSI shall grant the
-------------
Employee stock options to acquire (i) an aggregate of 750,000 shares of NSI
common stock (the "Common Stock") at an exercise price equal to the closing
price of the Common Stock on
-2-
<PAGE>
the last trading day prior to the Commencement Date; and (ii) an aggregate of
250,000 shares of Common Stock at an exercise price of $10.00 per share. The
stock options shall become vested and exercisable with respect to 25% of the
aggregate number of shares of Common Stock covered by each stock option as of
the first, second, third and fourth anniversaries of the date of grant and shall
be subject to such other terms and conditions as set forth in the stock option
agreements attached hereto as Exhibits A and B.
(d) Out-of-Pocket Expenses. NSI shall promptly pay to the Employee
----------------------
the reasonable expenses incurred by him in the performance of his duties
hereunder, including, without limitation, those incurred in connection with
business related travel or entertainment, or, if such expenses are paid directly
by the Employee, shall promptly reimburse him for such payment, provided that
the Employee properly accounts therefor in accordance with NSI's policy.
(e) Relocation Expenses. In accordance with NSI's relocation policy, NSI
-------------------
shall reimburse the Employee for up to $75,000 in moving expenses incurred by
him in his relocation to the Suffern, New York area, closing costs in connection
with the sale of his residence in Phoenix, Arizona and reasonable air travel for
the Employee to and from Phoenix, Arizona.
(f) Housing Allowance. NSI shall pay to the Employee a housing allowance
-----------------
in the amount of $2,500 per month through June 30, 1998.
(g) Participation in Benefit Plans. The Employee shall be entitled to
------------------------------
participate in or receive benefits under any pension plan, profit sharing plan,
health and accident plan or any other employee benefit plan or arrangement made
available in the future by NSI to its executives and key management employees,
subject to the terms and conditions applicable to executives and key management
generally.
(h) Vacation. The Employee shall be entitled to such paid vacation
--------
days in each calendar year as determined by NSI from time to time, but not less
than three (3) weeks in any calendar year, prorated in any calendar year during
which the Employee is employed hereunder for less than an entire year in
accordance with the number of days in such year during which he is so employed.
The Employee shall also be entitled to all paid holidays given by NSI to its
executives and key management employees. Such vacation and holiday allowance
shall otherwise be subject to the policies and practices of NSI.
5. Termination.
-----------
The Employee's employment hereunder shall be terminated upon the
Employee's death and may be terminated as follows:
(a) By NSI for "Cause." A termination for Cause is a termination upon
a finding by NSI that the Employee has (i) intentionally failed to perform
reasonably assigned duties, (ii) engaged in dishonest or willful misconduct in
the performance of his duties,
-3-
<PAGE>
(iii) engaged in a transaction in connection with the performance of his duties
to the Company or any of its Subsidiaries thereof which transaction is adverse
to the interests of the Company or any of its Subsidiaries and which is engaged
in for personal profit by the Employee or (iv) willfully violated any law, rule
or regulation in connection with the performance of his duties (other than
traffic violations or similar offenses).
(b) By NSI due to the Employee's "Disability." For purposes of this
Agreement a termination for Disability shall occur (i) upon the thirtieth (30th)
day after the issuance of a written termination notice to the Employee in the
event that the Employee shall have become so incapacitated as to be unable to
resume, within the ensuing six (6) months, his employment hereunder by reason of
physical or mental illness or injury, or (ii) upon the issuance of a written
termination notice after the Employee has been unable to substantially perform
his duties hereunder for three (3) consecutive months by reason of any physical
or mental illness.
(c) By NSI without Cause.
6. Compensation Upon Termination.
-----------------------------
(a) In the event of the termination of the Employee's employment as a
result of the Employee's death, NSI shall (i) pay to the Employee's estate his
Base Salary through the date of his death, and (ii) for the shorter of one (1)
year following his death or the balance of the Term (as if such termination had
not occurred) provide continuation coverage to the members of the Employee's
family under all Blue Cross/Blue Shield, major medical and other health,
accident, life or other disability plans and programs in which such family
members participated immediately prior to his death.
(b) In the event of the termination of the Employee's employment by
NSI for Cause or by the Employee for any reason NSI shall pay to the Employee
his Base Salary through the date of his termination, and the Employee's
entitlement to any other compensation or benefits shall be determined in
accordance with NSI's plans, policies and practices as in effect from time to
time.
(c) In the event of the termination of the Employee's employment by
NSI due to Disability, NSI shall pay to the Employee his Base Salary through the
date of his termination. In addition, for the shorter of one (1) year following
any such termination or the balance of the Term (as if such termination had not
occurred), NSI shall (i) continue to pay the Employee the Base Salary in effect
at the time of such termination less the amount, if any, then payable to the
Employee under any disability benefits of NSI and (ii) provide the Employee
continuation coverage under all Blue Cross/Blue Shield, major medical and other
health, accident, life or other disability plans and programs in which the
Employee participated immediately prior to such termination, to the extent that
such benefits continue to be made available to active employees of NSI.
-4-
<PAGE>
(d) In the event that the Employee's employment is terminated by NSI
other than for Cause or Disability, for a period of eighteen (18) months
following any such termination, NSI shall (i) continue to pay the Employee the
Base Salary in effect at the time of such termination and (ii) provide
continuation coverage under all Blue Cross/Blue Shield, accident, life or other
disability plans and programs in which the Employee participated immediately
prior to such termination, to the extent such benefits continue to be made
available to active employees of NSI. The continuation of Base Salary provided
for in clause (i) of the preceding sentence shall not be reduced by any
compensation or other income that the Employee may earn from subsequent
employment or otherwise.
(e) The continuation coverage under any Blue Cross/Blue Shield, major
medical and other health, accident, life or other disability plans and programs
for the periods provided in Sections 6(a), 6(c) and 6(d) shall be provided (i)
at the expense of NSI and (ii) in satisfaction of NSI's obligation under Section
4980B of the Code (and any similar state law) with respect to the period of time
such benefits are continued hereunder. Notwithstanding anything to the contrary
contained herein, NSI's obligation to provide such continuation coverage under
Sections 6(a), 6(c) or 6(d) shall cease immediately upon the date any covered
individual becomes eligible for similar benefits under the plans or policies of
another employer.
(f) This Section 6 sets forth the only obligations of NSI with respect
to the termination of the Employee's employment with NSI and the Employee
acknowledges that upon his termination of employment he shall not be entitled to
any payments or benefits which are not explicitly provided herein.
7. Covenant Regarding Inventions and Copyrights.
--------------------------------------------
The Employee shall disclose promptly to NSI any and all inventions,
discoveries, improvements and patentable or copyrightable works initiated,
conceived or made by him, either alone or in conjunction with others, during the
Term and related to the business or activities of NSI and he assigns all of his
interest therein to NSI or its nominee; whenever requested to do so by NSI, the
Employee shall execute any and all applications, assignments or other
instruments which NSI shall deem necessary to apply for and obtain letters
patent or copyrights of the United States or any foreign country or otherwise
protect NSI's interest therein. These obligations shall continue beyond the
conclusion of the Term with respect to inventions, discoveries, improvements or
copyrightable works initiated, conceived or made by the Employee during the Term
and shall be binding upon the Employee's assigns, executors, administrators and
other legal representatives.
8. Protection of Confidential Information.
--------------------------------------
The Employee acknowledges that he will be provided with information
about, and his employment by NSI will, throughout the Term, bring him into close
contact with, many confidential affairs of NSI and its subsidiaries, including
proprietary information about costs, profits, markets, sales, products, key
personnel, pricing policies, operational methods,
-5-
<PAGE>
technical processes and other business affairs and methods, plans for future
developments and other information not readily available to the public, all of
which are highly confidential and proprietary and all of which were developed by
NSI at great effort and expense. The Employee further acknowledges that the
services to be performed by him under this Agreement are of a special, unique,
unusual, extraordinary and intellectual character, that the business of NSI will
be conducted throughout the world (the "Territory"), that its products will be
marketed throughout the Territory, that NSI competes and will compete in nearly
all of its business activities with other organizations which are located in
nearly any part of the Territory and that the nature of the relationship of the
Employee with NSI is such that the Employee is capable of competing with NSI
from nearly any location in the Territory. In recognition of the foregoing, the
Employee covenants and agrees during the Term and thereafter:
(i) That he will keep secret all confidential matters of NSI and not
copy them or disclose them to anyone outside of NSI, either during or after the
Term, except with NSI's prior written consent or, if during the Term, in the
performance of his duties hereunder, the Employee makes a good faith
determination that it is in the best interest of NSI to disclose such matters;
(ii) That he will not make use of any of such confidential matters for
his own purposes or the benefit of anyone other than NSI; and
(iii) That he will deliver promptly to NSI on termination of this
Agreement, or at any time NSI may so request, all confidential memoranda, notes,
records, reports and other confidential documents (and all copies thereof)
relating to the business of NSI, which he may then possess or have under his
control.
9. Restriction on Competition, Interference and Solicitation.
---------------------------------------------------------
In recognition of the considerations described in Section 8 hereof,
the Employee covenants and agrees that, during the Term and for a period of two
(2) years after the termination of his employment hereunder, the Employee will
not, directly or indirectly, (A) enter into the employ of, or render any
services to, any person, firm or corporation engaged in any business competitive
with the business of NSI in any part of the Territory; (B) engage in any such
business for his account; (C) become interested in any such business as an
individual, partner, shareholder, creditor, director, officer, principal, agent,
employee, trustee, consultant advisor, franchisee or in any other relationship
or capacity; or (D) interfere with NSI's relationship with, or endeavor to
employ or entice away from NSI any person, firm, corporation, governmental
entity or other business organization who or which is or was an employee,
customer or supplier of, or maintained a business relationship with, NSI at any
time (whether before, during or after the Term), or which NSI has solicited or
prepared to solicit; provided, however, that nothing contained in this Section 9
-------- -------
shall be deemed to prohibit the Employee from acquiring or holding, solely for
investment, publicly traded securities of any corporation some of the activities
of which are competitive with the business of NSI so
-6-
<PAGE>
long as such securities do not, in the aggregate, constitute more than five
percent (5%) of any class or series of outstanding securities of such
corporation.
10. Specific Remedies.
-----------------
For purposes of Sections 7, 8 and 9 of this Agreement, references to
NSI shall include all current and future majority-owned subsidiaries of NSI and
all current and future joint ventures in which NSI may from time to time be
involved. It is understood by the Employee and NSI that the covenants contained
in this Section 10 and in Sections 7, 8, and 9 hereof are essential elements of
this Agreement and that, but for the agreement of the Employee to comply with
such covenants, NSI would not have agreed to enter into this Agreement. NSI and
the Employee have independently consulted with their respective counsel and have
been advised concerning the reasonableness and propriety of such covenants with
specific regard to the nature of the business conducted by NSI and the interests
of NSI and its stockholders. The Employee agrees that the covenants of Sections
7, 8, and 9 are reasonable and valid. If the Employee commits a breach of any
of the provisions of Sections 7, 8, or 9, such breach shall be deemed to be
grounds for termination for Cause. In addition, the Employee acknowledges that
NSI may have no adequate remedy at law if he violates any of the terms hereof.
The Employee therefore understands and agrees that NSI shall have (i) the right
to have such provisions specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach will cause
irreparable injury to NSI and that money damages will not provide an adequate
remedy to NSI, and (ii) the right to require the Employee to account for and pay
over to NSI all compensation, profits, monies, accruals, increments and other
benefits (collectively, the "Benefits") derived or received by the Employee as a
result of any transaction constituting a willful breach of any of the provisions
of Sections 7, 8, or 9 and the Employee hereby agrees to account for and pay
over such Benefits to NSI.
11. Independence, Severability and Non-Exclusivity.
----------------------------------------------
Each of the rights enumerated in Section 10 hereof shall be
independent of the others and shall be in addition to and not in lieu of any
other rights and remedies available to NSI at law or in equity. If any of the
covenants contained in Sections 7, 8, or 9, or any part of any of them, is
hereafter construed or adjudicated to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants or rights or
remedies which shall be given full effect without regard to the invalid
portions. The parties intend to and do hereby confer jurisdiction to enforce
the covenants contained in Sections 7, 8, or 9 and the remedies enumerated in
Section 10 upon the federal and state courts of New York sitting in New York
County. If any of the covenants contained in Sections 7, 8, or 9 is held to be
invalid or unenforceable because of the duration of such provision or the area
covered thereby, the parties agree that the court making such determination
shall have the power to reduce the duration and/or area of such provision and in
its reduced form said provision shall then be enforceable. No such holding of
invalidity or unenforceability in one jurisdiction shall bar or in any way
affect NSI's right to the relief provided in Section 10 or otherwise in the
courts of
-7-
<PAGE>
any other state or jurisdiction within the geographical scope of such covenants
as to breaches of such covenants in such other respective states of
jurisdictions, such covenants being, for this purpose, severable into diverse
and independent covenants.
12. Disputes.
--------
If NSI or the Employee shall dispute any termination of the Employee's
employment hereunder or if a dispute concerning any payment hereunder shall
exist:
(a) either party shall have the right (but not the obligation), in
addition to all other rights and remedies provided by law, to compel arbitration
of the dispute in the City of New York under the rules of the American
Arbitration Association by giving written notice of arbitration to the other
party within thirty (30) days after notice of such dispute has been received by
the party to whom notice has been given; and
(b) if such dispute (whether or not submitted to arbitration pursuant
to Section 12(a) hereof) results in a determination that (i) NSI did not have
the right to terminate the Employee's employment under the provisions of this
Agreement or (ii) the position taken by the Employee concerning payments to the
Employee is correct, NSI shall promptly pay, or if theretofore paid by the
Employee, shall promptly reimburse the Employee for, all costs and expenses
(including attorney's fees) reasonably incurred by the Employee in connection
with such dispute.
13. Successors; Binding Agreement.
------------------------------
This Agreement shall be binding upon and shall inure to the benefit of
NSI, its successors and assigns and NSI shall require any successor or assign to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that NSI would be required to perform it if no such succession
or assignment had taken place. "NSI" as used herein shall include any such
successors and assigns to NSI's business and/or assets. The term "successors
and assigns" as used herein shall mean a corporation or other entity acquiring
or otherwise succeeding to, directly or indirectly, all or substantially all the
stock or assets and business of NSI (including this Agreement) whether by
operation of law or otherwise.
This Agreement and all rights of the Employee hereunder shall inure to
the benefit of, and be enforceable by, the Employee's personal or legal
representatives, executors, administrators, administrators c.t.a., successors,
heirs, distributees, devisees and legatees. Unless otherwise provided herein,
any amounts payable hereunder after the Employee's death shall be paid in
accordance with the terms of this Agreement to the Employee's estate.
14. Notices.
-------
All notices, consents or other communications required or permitted to
be given by any party hereunder shall be in writing (including telecopy or other
similar writing) and
-8-
<PAGE>
shall be given by personal delivery, certified or registered mail, postage
prepaid, or telecopy (or other similar writing) as follows:
To NSI:
Attn: General Counsel
Two Executive Boulevard
Suffern, New York, 10901-4414
To the Employee:
Paul Sohmer
__________________________
__________________________
__________________________
or at such other address or telecopy number (or other similar number) as either
party may from time to time specify to the other. Any notice, consent or other
communication required or permitted to be given hereunder shall be deemed to
have been given on the date of mailing, personal delivery or telecopy or other
similar means thereof (provided the appropriate answer back is received) and
shall be conclusively presumed to have been received on the second business day
following the date of mailing or, in the case of personal delivery or telecopy
or other similar means, the day of delivery thereof, except that a change of
address shall not be effective until actually received.
15. Employee Representation.
-----------------------
Employee represents and warrants that his execution of this Agreement
and performance of his duties pursuant to this Agreement will not constitute a
breach of any contract or obligation he has or may have to any other party.
16. Modifications and Waivers.
-------------------------
No term, provision or condition of this Agreement may be modified or
discharged unless such modification or discharge is authorized by the Board and
is agreed to in writing and signed by the Employee. No waiver by either party
hereto of any breach by the other party hereto of any term, provision or
condition of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
17. Entire Agreement.
----------------
This Agreement constitutes the entire understanding between the
parties hereto relating to the subject matter hereof, superseding all
negotiations, prior discussions, preliminary agreements and agreements relating
to the subject matter hereof made prior to the date hereof.
-9-
<PAGE>
18. Law Governing.
-------------
Except as otherwise explicitly noted, this Agreement shall be governed
by and construed in accordance with the laws of the State of New York (without
giving effect to conflicts of law).
19. Invalidity.
----------
Except as otherwise specified herein, the invalidity or
unenforceability of any term or terms of this Agreement shall not invalidate,
make unenforceable or otherwise affect any other term of this Agreement which
shall remain in full force and effect.
20. Headings.
--------
The headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year set forth above.
NEUROMEDICAL SYSTEMS, INC.
By: /s/ John B. Henneman, III
---------------------------------
John B. Henneman, III
Vice President and General Counsel
/s/ Paul Sohmer
---------------------------------
Paul Sohmer
-10-
<PAGE>
Exhibit 10.42
-------------
NEUROMEDICAL SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, effective as of the 4th day of November, 1997 (the
"Grant Date"), between NEUROMEDICAL SYSTEMS, INC., a Delaware corporation (the
"Company"), and PAUL SOHMER (the "Optionee").
WHEREAS, the Company has previously determined to grant an option to
the Optionee as provided herein and the Company and the Optionee hereby wish to
memorialize the terms and conditions applicable to the Option;
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
---------------
1.1 Effective as of the Grant Date the Company granted to the
Optionee the right and option (the "Option") to purchase all or any part of an
aggregate of 750,000 whole shares of common stock, par value $.0001 per share,
of the Company. (the "Shares") subject to, and in accordance with, the terms and
conditions set forth in this Agreement.
1.2 The Option is not intended to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.
1.3 Certain capitalized terms used herein shall have the
meanings ascribed to them in Section 19 hereof.
2. Purchase Price.
--------------
The price at which the Optionee shall be entitled to purchase Shares
upon the exercise of the Option shall be $4 9/16 per Share.
3. Duration of Option.
------------------
Subject to the terms and conditions of this Agreement, the Option
shall be exercisable to the extent and in the manner provided herein for a
period of ten (10) years from the Grant Date (the "Exercise Term"); provided,
--------
however, that the Option may be earlier terminated as provided in Section 6
- -------
hereof.
<PAGE>
4. Exercisability of Option.
------------------------
Subject to the terms and conditions of this Agreement, the Option
shall be exercisable as follows:
(a) The Option shall become vested and exercisable with respect to 25%
of the aggregate number of Shares covered by the Option as of each of the first,
second, third and fourth anniversaries of the Grant Date.
(b) Any fractional number of shares resulting from the application of
the percentages set forth above in this Section 4 shall be rounded to the next
higher whole number of Shares.
(c) Notwithstanding the vesting provisions set forth above in this
Section 4, the Option shall immediately become fully (100%) vested and
exercisable upon a Change in Control.
5. Manner of Exercise and Payment.
------------------------------
5.1 Subject to the terms and conditions of this Agreement, the
Option may be exercised by delivery of written notice to the Company, at its
principal executive office. Such notice shall state that the Optionee is
electing to exercise the Option and the number of Shares in respect of which the
Option is being exercised and shall be signed by the person or persons
exercising the Option. If requested by the Board of Directors of the Company
(the "Board"), such person or persons shall (i) deliver this Agreement to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and (ii) provide satisfactory proof as to the right of such person or persons to
exercise the Option.
5.2 The notice of exercise described in Section 5.1 shall be
accompanied by (x) either (i) payment of the full purchase price for the Shares
in respect of which the Option is being exercised, in cash, by check or, at the
sole discretion of the Board, by transferring Shares to the Company having a
Fair Market Value on the day preceding the date of exercise equal to the cash
amount for which such Shares are substituted or (ii) subject to the consent of
the Board, instructions from the Optionee to the Company directing the Company
to deliver a specified number of Shares directly to a designated broker or
dealer pursuant to a cashless exercise election which is made in accordance with
such requirements and procedures as are acceptable to the Board in its sole
discretion and (y) full payment of all applicable Withholding Taxes (as defined
in Section 11) pursuant to Section 11 hereof.
5.3 Upon receipt of the notice of exercise and any payment or
other documentation as may be necessary pursuant to Section 5.2 relating to the
Shares in respect of which the Option is being exercised, the Company shall,
subject to this Agreement, take such action as may be necessary to effect the
transfer to the Optionee of the number of Shares as to which such exercise was
effective. No fractional Shares (or cash in lieu thereof) shall be issued
2
<PAGE>
upon exercise of an Option and the number of Shares that may be purchased upon
exercise shall be rounded to the nearest number of whole Shares.
5.4 The Optionee shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to any Shares subject to the
Option until (i) the Option shall have been exercised pursuant to the terms of
this Agreement and the Optionee shall have paid the full purchase price for the
number of Shares in respect of which the Option was exercised, (ii) the Company
shall have issued and delivered the Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company, whereupon the Optionee shall have full voting and other
ownership rights with respect to such Shares.
6. Termination of Employment.
-------------------------
6.1 Death or Disability. In the event the employment of the
-------------------
Optionee is terminated as a result of Disability or death, the Optionee may at
any time within one (1) year after such termination of employment (but in no
event beyond the expiration of the stated term of the Option), exercise the
Option to the extent, but only to the extent, that the Option or portion thereof
was exercisable on the date of such termination of employment, after which time
the Option shall terminate in full. In the event of the Optionee's death, the
Option shall be exercisable, to the extent provided in this Agreement, by the
legatee or legatees under the Optionee's will, or by the Optionee's personal
representatives or distributees and such person or persons shall be substituted
for the Optionee each time the Optionee is referred to herein.
6.2 Cause. In the event the employment of the Optionee is
-----
terminated for Cause, the Option shall terminate on the date of the Optionee's
termination of employment whether or not exercisable.
6.3 Other Termination of Employment. If the employment of the
-------------------------------
Optionee is terminated for any reason other Disability, death or Cause, the
Optionee may at any time within three (3) months after such termination of
employment (but in no event beyond the expiration of the stated term of the
Option), exercise the Option to the extent, but only to the extent, that the
Option or portion thereof was exercisable on the date of the termination of
employment, after which time the Option shall terminate in full.
6.4 Following a Change in Control. Notwithstanding the
-----------------------------
foregoing provisions of Section 6, in the event the Optionee's employment with
the Company is terminated by the Company following a Change in Control, the
Option shall remain exercisable until the first anniversary of the termination
of the Optionee's employment (but in no event beyond the expiration of the
stated term of the Option.)
7. Nontransferability.
------------------
3
<PAGE>
The Option shall not be transferable other than by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code or by such other means explicitly permitted pursuant to
Rule 16b-3 under the Exchange Act. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee, except in the case of an
Option transferred pursuant to a qualified domestic relations order.
8. No Right to Continued Employment.
--------------------------------
Nothing in this Agreement shall be interpreted or construed to confer
upon the Optionee any right with respect to continuance of employment by the
Company, nor shall this Agreement interfere in any way with the right of the
Company to terminate the Optionee's employment at any time.
9. Adjustments.
-----------
In the event of a Change in Capitalization, the Board may make
appropriate adjustments to the number and class of Shares or other stock or
securities subject to the Option and the purchase price for such Shares or other
stock or securities. The Board's adjustment shall be final and binding for all
purposes of this Agreement.
10. Effect of a Liquidation, Merger or Consolidation.
------------------------------------------------
Upon the effective date of (i) the liquidation or dissolution of the
Company or (ii) a merger or consolidation of the Company (a "Transaction"), the
Option shall continue in effect in accordance with its terms and the Optionee
shall be entitled to receive in respect of each Share subject to the Option,
upon exercise of the Option, the same number and kind of stock, securities,
cash, property or other consideration that each holder of a Share was entitled
to receive in the Transaction in respect of a Share.
11. Withholding of Taxes.
--------------------
The Company shall have the right to deduct from any distribution of
cash to the Optionee an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to the Option. If the Optionee is entitled to
receive Shares upon exercise of the Option, the Optionee shall pay the
Withholding Taxes to the Company in cash prior to the issuance of such Shares.
In satisfaction of the Withholding Taxes, the Optionee may make a written
election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the Shares issuable
to him or her upon exercise of the Option, having an aggregate Fair Market
Value, on the date preceding the date of such issuance, equal to the Withholding
Taxes, provided that if the Optionee may be subject to liability under Section
16(b) of the Exchange Act either (i) (A) the Tax Election is made at least six
(6) months prior to the date the Option is exercised and (B) the Tax Election is
irrevocable with respect to the exercise of all Options which are exercised
prior to the expiration of six (6) months following a revocation of the Tax
Election or (ii) (A) the
4
<PAGE>
Optionee makes the Tax Election at least six (6) months after the Grant Date,
(B) the Option is exercised during the ten-day period beginning on the third
business day and ending on the twelfth business day following the release for
publication of the Company's quarterly or annual statement of sales and earnings
(a "Window Period") and (C) the Tax Election is made during the Window Period in
which the Option is exercised or prior to such Window Period and subsequent to
the immediately preceding Window Period.
12. Modification of Agreement.
-------------------------
This Agreement may be modified, amended, suspended or terminated, and
any terms or conditions may be waived, but only by a written instrument executed
by the parties hereto.
13. Severability.
------------
Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
14. Governing Law.
-------------
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without giving
effect to the conflicts of laws principles thereof.
15. Successors in Interest.
----------------------
This Agreement shall inure to the benefit of and be binding upon any
successor to the Company. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee and
all rights granted to the Company under this Agreement shall be final, binding
and conclusive upon the Optionee's heirs, executors, administrators and
successors.
16. Resolution of Disputes.
----------------------
Any dispute or disagreement which may arise under, or as a result of,
or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Committee. Any determination made
hereunder shall be final, binding and conclusive on the Optionee and Company for
all purposes.
17. No Assignment.
-------------
5
<PAGE>
Except as otherwise provided herein, the rights of the Optionee
hereunder may not be assigned or otherwise transferred to any other party.
18. Entire Agreement.
----------------
This Agreement constitutes the entire agreement, and supersedes all
prior agreements and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof.
19. Definitions.
-----------
(a) "Beneficial Ownership" of Shares means (i) direct or indirect
beneficial ownership of such Shares; (ii) the right to acquire such Shares
(whether such right is exercisable immediately or only after the passage of time
or under specific conditions) pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; or (iii) the right to vote such
Shares pursuant to any agreement, arrangement or understanding; provided,
--------
however, that a person shall not be deemed to have Beneficial Ownership of any
- -------
Share if the agreement, arrangement or understanding to vote such Share arises
solely from a revocable proxy or consent given to such person.
(b) "Cause" as used in this Agreement shall have the meaning set forth
in Section 5(a) of the employment agreement by and among the parties hereto,
effective November 4, 1997 (the "Employment Agreement").
(c) "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company or another corporation, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization, spin-
off, split-up, issuance of warrants or rights or debentures, stock dividend,
stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, change in corporate
structure or otherwise.
(d) "Change in Control" means (i) the acquisition (by means of
purchase, merger or otherwise) by any person or any two or more persons acting
as a partnership, syndicate or other group for the purpose of acquiring, holding
or disposing of such securities of Beneficial Ownership of forty percent (40%)
or more of the sum of the amount of the Shares then outstanding, plus any Shares
which may be issued pursuant to the conversion or exercise of all outstanding
options, rights or warrants; or (ii) the sale of all or substantially all of the
assets of the Company. Notwithstanding anything to the contrary, for purposes
of this Section 2.7, a person shall not be deemed to have made an acquisition of
Beneficial Ownership of Shares if such person: (a) acquires Beneficial
Ownership of such Shares directly from the Company; (b) assumes Beneficial
Ownership of more than the permitted percentage of Shares solely as a result of
the acquisition of Beneficial Ownership of Shares by the Company which, by
reducing the
6
<PAGE>
proportional Beneficial Ownership of Shares by other security holders, increases
the proportional Beneficial Ownership of Shares by such person; or (c) is (1)
the Company or any corporation or other person of which a majority of its voting
power or its equity securities or equity interest is owned directly or
indirectly by the Company (a "Controlled Entity") or is owned directly or
indirectly by the stockholders of the Company in the same proportion as their
Beneficial Ownership of Shares or (2) a trustee or other fiduciary holding
securities under one or more employee benefit plans or arrangements (or any
trust forming a part thereof) maintained by the Company or any Controlled
Entity.
(e) "Disability" as used in this Agreement shall have the meaning set
forth in Section 5(b) of the Employment Agreement.
(f) "Fair Market Value" on any date means the average of the high and
low sales prices of the Shares on such date on the principal national securities
exchange on which such Shares are listed or admitted to trading, or, if such
Shares are not so listed or admitted to trading, the arithmetic mean of the per
Share closing bid price and per Share closing asked price on such date as quoted
on the National Association of Securities Dealers Automated Quotation System or
such other market in which such prices are regularly quoted, or, if there have
been no published bid or asked quotations with respect to Shares on such date,
the Fair Market Value shall be the value established by the Board in good faith.
IN WITNESS WHEREOF the parties hereto have executed this Agreement to
be effective as of the day and year first set forth above.
NEUROMEDICAL SYSTEMS, INC.
Attest: By: /s/ David Duncan, Jr.
----------------------------
/s/ John B. Henneman, III Vice President Finance
- --------------------------------- and Administration, CFO
Secretary
/s/ Paul Sohmer
----------------------------
Optionee
7
<PAGE>
Exhibit 10.43
-------------
NEUROMEDICAL SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, effective as of the 4th day of November, 1997 (the
"Grant Date"), between NEUROMEDICAL SYSTEMS, INC., a Delaware corporation (the
"Company"), and PAUL SOHMER (the "Optionee").
WHEREAS, the Company has previously determined to grant an option to
the Optionee as provided herein and the Company and the Optionee hereby wish to
memorialize the terms and conditions applicable to the Option;
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
---------------
1.1 Effective as of the Grant Date the Company granted to the
Optionee the right and option (the "Option") to purchase all or any part of an
aggregate of 250,000 whole shares of common stock, par value $.0001 per share,
of the Company. (the "Shares") subject to, and in accordance with, the terms and
conditions set forth in this Agreement.
1.2 The Option is not intended to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.
1.3 Certain capitalized terms used herein shall have the
meanings ascribed to them in Section 19 hereof.
2. Purchase Price.
--------------
The price at which the Optionee shall be entitled to purchase Shares
upon the exercise of the Option shall be $10.00 per Share.
3. Duration of Option.
------------------
Subject to the terms and conditions of this Agreement, the Option
shall be exercisable to the extent and in the manner provided herein for a
period of ten (10) years from the Grant Date (the "Exercise Term"); provided,
--------
however, that the Option may be earlier terminated as provided in Section 6
- -------
hereof.
<PAGE>
4. Exercisability of Option.
------------------------
Subject to the terms and conditions of this Agreement, the Option
shall be exercisable as follows:
(a) The Option shall become vested and exercisable with respect to 25%
of the aggregate number of Shares covered by the Option as of each of the first,
second, third and fourth anniversaries of the Grant Date.
(b) Any fractional number of shares resulting from the application of
the percentages set forth above in this Section 4 shall be rounded to the next
higher whole number of Shares.
(c) Notwithstanding the vesting provisions set forth above in this
Section 4, the Option shall immediately become fully (100%) vested and
exercisable upon a Change in Control.
5. Manner of Exercise and Payment.
------------------------------
5.1 Subject to the terms and conditions of this Agreement, the
Option may be exercised by delivery of written notice to the Company, at its
principal executive office. Such notice shall state that the Optionee is
electing to exercise the Option and the number of Shares in respect of which the
Option is being exercised and shall be signed by the person or persons
exercising the Option. If requested by the Board of Directors of the Company
(the "Board"), such person or persons shall (i) deliver this Agreement to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and (ii) provide satisfactory proof as to the right of such person or persons to
exercise the Option.
5.2 The notice of exercise described in Section 5.1 shall be
accompanied by (x) either (i) payment of the full purchase price for the Shares
in respect of which the Option is being exercised, in cash, by check or, at the
sole discretion of the Board, by transferring Shares to the Company having a
Fair Market Value on the day preceding the date of exercise equal to the cash
amount for which such Shares are substituted or (ii) subject to the consent of
the Board, instructions from the Optionee to the Company directing the Company
to deliver a specified number of Shares directly to a designated broker or
dealer pursuant to a cashless exercise election which is made in accordance with
such requirements and procedures as are acceptable to the Board in its sole
discretion and (y) full payment of all applicable Withholding Taxes (as defined
in Section 11) pursuant to Section 11 hereof.
5.3 Upon receipt of the notice of exercise and any payment or
other documentation as may be necessary pursuant to Section 5.2 relating to the
Shares in respect of which the Option is being exercised, the Company shall,
subject to this Agreement, take such action as may be necessary to effect the
transfer to the Optionee of the number of Shares as to which such exercise was
effective. No fractional Shares (or cash in lieu thereof) shall be issued
2
<PAGE>
upon exercise of an Option and the number of Shares that may be purchased upon
exercise shall be rounded to the nearest number of whole Shares.
5.4 The Optionee shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to any Shares subject to the
Option until (i) the Option shall have been exercised pursuant to the terms of
this Agreement and the Optionee shall have paid the full purchase price for the
number of Shares in respect of which the Option was exercised, (ii) the Company
shall have issued and delivered the Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company, whereupon the Optionee shall have full voting and other
ownership rights with respect to such Shares.
6. Termination of Employment.
-------------------------
6.1 Death or Disability. In the event the employment of the
-------------------
Optionee is terminated as a result of Disability or death, the Optionee may at
any time within one (1) year after such termination of employment (but in no
event beyond the expiration of the stated term of the Option), exercise the
Option to the extent, but only to the extent, that the Option or portion thereof
was exercisable on the date of such termination of employment, after which time
the Option shall terminate in full. In the event of the Optionee's death, the
Option shall be exercisable, to the extent provided in this Agreement, by the
legatee or legatees under the Optionee's will, or by the Optionee's personal
representatives or distributees and such person or persons shall be substituted
for the Optionee each time the Optionee is referred to herein.
6.2 Cause. In the event the employment of the Optionee is
-----
terminated for Cause, the Option shall terminate on the date of the Optionee's
termination of employment whether or not exercisable.
6.3 Other Termination of Employment. If the employment of the
-------------------------------
Optionee is terminated for any reason other Disability, death or Cause, the
Optionee may at any time within three (3) months after such termination of
employment (but in no event beyond the expiration of the stated term of the
Option), exercise the Option to the extent, but only to the extent, that the
Option or portion thereof was exercisable on the date of the termination of
employment, after which time the Option shall terminate in full.
6.4 Following a Change in Control. Notwithstanding the
-----------------------------
foregoing provisions of Section 6, in the event the Optionee's employment with
the Company is terminated by the Company following a Change in Control, the
Option shall remain exercisable until the first anniversary of the termination
of the Optionee's employment (but in no event beyond the expiration of the
stated term of the Option.)
3
<PAGE>
7. Nontransferability.
------------------
The Option shall not be transferable other than by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code or by such other means explicitly permitted pursuant to
Rule 16b-3 under the Exchange Act. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee, except in the case of an
Option transferred pursuant to a qualified domestic relations order.
8. No Right to Continued Employment.
--------------------------------
Nothing in this Agreement shall be interpreted or construed to confer
upon the Optionee any right with respect to continuance of employment by the
Company, nor shall this Agreement interfere in any way with the right of the
Company to terminate the Optionee's employment at any time.
9. Adjustments.
-----------
In the event of a Change in Capitalization, the Board may make
appropriate adjustments to the number and class of Shares or other stock or
securities subject to the Option and the purchase price for such Shares or other
stock or securities. The Board's adjustment shall be final and binding for all
purposes of this Agreement.
10. Effect of a Liquidation, Merger or Consolidation.
------------------------------------------------
Upon the effective date of (i) the liquidation or dissolution of the
Company or (ii) a merger or consolidation of the Company (a "Transaction"), the
Option shall continue in effect in accordance with its terms and the Optionee
shall be entitled to receive in respect of each Share subject to the Option,
upon exercise of the Option, the same number and kind of stock, securities,
cash, property or other consideration that each holder of a Share was entitled
to receive in the Transaction in respect of a Share.
11. Withholding of Taxes.
--------------------
The Company shall have the right to deduct from any distribution of
cash to the Optionee an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to the Option. If the Optionee is entitled to
receive Shares upon exercise of the Option, the Optionee shall pay the
Withholding Taxes to the Company in cash prior to the issuance of such Shares.
In satisfaction of the Withholding Taxes, the Optionee may make a written
election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the Shares issuable
to him or her upon exercise of the Option, having an aggregate Fair Market
Value, on the date preceding the date of such issuance, equal to the Withholding
Taxes, provided that if the Optionee may be subject to liability under Section
16(b) of the Exchange Act either (i) (A) the Tax Election is made at least six
(6) months prior to the date the Option is exercised and (B) the Tax
4
<PAGE>
Election is irrevocable with respect to the exercise of all Options which are
exercised prior to the expiration of six (6) months following a revocation of
the Tax Election or (ii) (A) the Optionee makes the Tax Election at least six
(6) months after the Grant Date, (B) the Option is exercised during the ten-day
period beginning on the third business day and ending on the twelfth business
day following the release for publication of the Company's quarterly or annual
statement of sales and earnings (a "Window Period") and (C) the Tax Election is
made during the Window Period in which the Option is exercised or prior to such
Window Period and subsequent to the immediately preceding Window Period.
12. Modification of Agreement.
-------------------------
This Agreement may be modified, amended, suspended or terminated, and
any terms or conditions may be waived, but only by a written instrument executed
by the parties hereto.
13. Severability.
------------
Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
14. Governing Law.
-------------
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without giving
effect to the conflicts of laws principles thereof.
15. Successors in Interest.
----------------------
This Agreement shall inure to the benefit of and be binding upon any
successor to the Company. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee and
all rights granted to the Company under this Agreement shall be final, binding
and conclusive upon the Optionee's heirs, executors, administrators and
successors.
16. Resolution of Disputes.
----------------------
Any dispute or disagreement which may arise under, or as a result of,
or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Committee. Any determination made
hereunder shall be final, binding and conclusive on the Optionee and Company for
all purposes.
5
<PAGE>
17. No Assignment.
-------------
Except as otherwise provided herein, the rights of the Optionee
hereunder may not be assigned or otherwise transferred to any other party.
18. Entire Agreement.
----------------
This Agreement constitutes the entire agreement, and supersedes all
prior agreements and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof.
19. Definitions.
-----------
(a) "Beneficial Ownership" of Shares means (i) direct or indirect
beneficial ownership of such Shares; (ii) the right to acquire such Shares
(whether such right is exercisable immediately or only after the passage of time
or under specific conditions) pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; or (iii) the right to vote such
Shares pursuant to any agreement, arrangement or understanding; provided,
--------
however, that a person shall not be deemed to have Beneficial Ownership of any
- -------
Share if the agreement, arrangement or understanding to vote such Share arises
solely from a revocable proxy or consent given to such person.
(b) "Cause" as used in this Agreement shall have the meaning set forth
in Section 5(a) of the employment agreement by and among the parties hereto,
effective November 4, 1997 (the "Employment Agreement").
(c) "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company or another corporation, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization, spin-
off, split-up, issuance of warrants or rights or debentures, stock dividend,
stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, change in corporate
structure or otherwise.
(d) "Change in Control" means (i) the acquisition (by means of
purchase, merger or otherwise) by any person or any two or more persons acting
as a partnership, syndicate or other group for the purpose of acquiring, holding
or disposing of such securities of Beneficial Ownership of forty percent (40%)
or more of the sum of the amount of the Shares then outstanding, plus any Shares
which may be issued pursuant to the conversion or exercise of all outstanding
options, rights or warrants; or (ii) the sale of all or substantially all of the
assets of the Company. Notwithstanding anything to the contrary, for purposes
of this Section 2.7, a person shall not be deemed to have made an acquisition of
Beneficial Ownership of Shares if such person: (a) acquires Beneficial
Ownership of such Shares directly from the Company; (b) assumes Beneficial
Ownership of more than the permitted percentage of Shares solely as a result of
the
6
<PAGE>
acquisition of Beneficial Ownership of Shares by the Company which, by reducing
the proportional Beneficial Ownership of Shares by other security holders,
increases the proportional Beneficial Ownership of Shares by such person; or (c)
is (1) the Company or any corporation or other person of which a majority of its
voting power or its equity securities or equity interest is owned directly or
indirectly by the Company (a "Controlled Entity") or is owned directly or
indirectly by the stockholders of the Company in the same proportion as their
Beneficial Ownership of Shares or (2) a trustee or other fiduciary holding
securities under one or more employee benefit plans or arrangements (or any
trust forming a part thereof) maintained by the Company or any Controlled
Entity.
(e) "Disability" as used in this Agreement shall have the meaning set
forth in Section 5(b) of the Employment Agreement.
(f) "Fair Market Value" on any date means the average of the high and
low sales prices of the Shares on such date on the principal national securities
exchange on which such Shares are listed or admitted to trading, or, if such
Shares are not so listed or admitted to trading, the arithmetic mean of the per
Share closing bid price and per Share closing asked price on such date as quoted
on the National Association of Securities Dealers Automated Quotation System or
such other market in which such prices are regularly quoted, or, if there have
been no published bid or asked quotations with respect to Shares on such date,
the Fair Market Value shall be the value established by the Board in good faith.
IN WITNESS WHEREOF the parties hereto have executed this Agreement to
be effective as of the day and year first set forth above.
NEUROMEDICAL SYSTEMS, INC.
Attest: By: /s/ David Duncan, Jr.
----------------------------------------------
Vice President Finance and Administration, CFO
/s/ John B. Henneman III
- -------------------------------
Secretary
/s/ Paul Sohmer
-----------------------------------
Optionee
7
<PAGE>
Exhibit 10.44
-------------
Form of Amendment to Employee Stock Option Agreements
-----------------------------------------------------
NEUROMEDICAL SYSTEMS, INC.
1993 STOCK OPTION PLAN
AS AMENDED AND RESTATED OCTOBER 25, 1995
NONQUALIFIED STOCK OPTION AGREEMENTS
AMENDMENT
This AMENDMENT, effective as of September 18, 1997, (the "Amendment")
between Neuromedical Systems, Inc., a Delaware corporation (the "Company"), and
each Optionee as such term is defined below, with respect to any and all
agreements between the Company and Optionee made pursuant to and in accordance
with the Neuromedical Systems, Inc. 1993 Stock Option Plan (the "Original Plan")
and/or the Neuromedical Systems, Inc. 1993 Stock Option Plan, as amended and
restated on October 25, 1995 (the "Amended Plan" and collectively with the
Original Plan, the "Plan") governing one or more grants of an Option by the
Company to Optionee prior to the date hereof (each such agreement, an "Option
Agreement"; other capitalized terms not otherwise defined herein shall have the
meanings assigned thereto in the respective Plan and/or the respective Option
Agreement(s) executed thereunder).
WHEREAS, under the current terms and conditions of each Option
Agreement, upon Optionee's cessation of employment by the Company (whether
voluntarily or involuntarily), Optionee must exercise any vested and exercisable
options within 90 days of such departure;
WHEREAS, the Board of Directors of the Company (the "Board") has
authorized an amendment to each Option Agreement permitting an extension to such
departing exercise period upon observance by Optionee of certain additional
terms and conditions;
WHEREAS, the Board has taken such action to benefit both Optionee and
the Company as a whole;
NOW THEREFORE, Company and Optionee agree as follows:
Exercise Period. If Optionee is terminated from employment by a
---------------
Termination Event, as such term is defined below, the Optionee may at any time
within three (3) months after such termination of employment, exercise the
Option to the extent, but only to the extent, that the Option or portion thereof
was exercisable on the date of the termination of employment, after which time
the Option shall terminate in full, provided, however, that so long as (i)
-------- -------
Optionee remains an employee through the earlier of (a) six months after the
first day the new Chief Executive Officer (successor to Co-Chief Executives John
B. Henneman, III and Uzi Ish-Hurwitz) is present in his capacity as Chief
Executive Officer of the Company at the offices of the Company and (b) December
31, 1998, or (ii) Optionee is discharged without Cause on or after September 4,
1997 but prior to the dates set forth in clause (i) above, then the Optionee may
at any time within
- 1 -
<PAGE>
two (2) years after the date of such Termination Event exercise the Option to
the extent, but only to the extent, that the Option or portion thereof was
exercisable on the date of such Termination Event, after which time the Option
shall terminate in full.
Optionee Acknowledgment. Optionee acknowledges that, to the extent
-----------------------
Optionee has entered into any agreement with the Company with respect to
Replacement Options, dated July 28, 1997 (each, a "Replacement Option
Agreement"), this document constitutes due notice of amendment in accordance
with the terms of such Replacement Option Agreement, which provides for
unilateral amendment to the Option Agreement by the Company so long as (i) the
result of such amendment does not adversely affect Optionee's rights under the
Option Agreement or the Plan, and (ii) reasonable notice of any such unilateral
amendment is provided to Optionee.
Company Waiver. Notwithstanding the terms and conditions of any
--------------
Option Agreement providing for amendment only by written instrument signed by
all of the parties thereto, the Company waives such requirement with respect to
Optionee and hereby intends that this Amendment be a valid and binding
obligation of the Company, enforceable in accordance with the terms and
conditions set forth herein, and the Company further waives any and all right to
contest the validity or enforceability of this Amendment on grounds of absence
of Optionee's signature hereto.
Definition of "Optionee". For purposes of this Amendment, the term
------------------------
"Optionee" shall mean, individually, each employee of the Company and any
Subsidiary who has entered into an Option Agreement(s) with the Company on or
prior to the date first set forth above, provided, however, that such term shall
-------- -------
not include any present or former (a) Chief or Co-Chief Executive Officers of
the Company, (b) consultants of the Company and any Subsidiary, and (c) members
of the Company Board of Directors, and this Amendment shall not be applicable to
any of the foregoing at any time by reason of cessation of affiliation with the
Company in any such capacity.
Definition of "Termination Event". For purposes of this Amendment,
----------------------------------
the term "Termination Event" shall mean voluntary or involuntary termination
from employment of Optionee by the Company or any Subsidiary for any reason
other than Disability, death or Cause, including the Optionee's ceasing to be
employed by a Subsidiary or division of the Company or any Subsidiary as a
result of the sale of such Subsidiary or division or an interest in such
Subsidiary or division.
Entire Agreement. This Amendment and Optionee's respective Option
----------------
Agreement(s) (including the Exhibits, Schedules and other documents referred to
herein and therein) constitute the entire agreement between the Company and the
Optionee, and supersede any prior understandings, agreements, or representations
by or between the parties, written or oral, to the extent they related in any
way to the subject matter hereof. This Amendment amends Optionee's respective
Option Agreement(s) only to the extent set forth herein and does not otherwise
amend, waive or modify such Option
<PAGE>
Agreement(s), and all other terms and conditions of the respective Option
Agreement(s) shall remain fully operative.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has duly executed this Amendment to be effective
as of the date first written above,
NEUROMEDICAL SYSTEMS, INC.
By: ______________________________
Name:
Title:
<PAGE>
Schedule
--------
Pursuant to the General Instructions to Item 601 of Regulation SK of the
Securities Act of 1933, as amended, the Company has filed only the form of the
Company's Amendment to Employee Stock Option Agreements (the "Amendment")
because the executed exemplars of such document are substantially identical in
all material respects, except as to the parties thereto, and certain substituted
terms, in each case as set forth as follows:
<TABLE>
<CAPTION>
Employee Party to Amendment Substituted Terms
- ------------------------------------------------------------------------------------------
<S> <C>
David Duncan, Jr.
Vice President Finance and
Administration and CFO None
Zeev Hadass, Ph.D.
Vice President, Processing Operations None
John B. Henneman, III "Optionee" definition contains no exclusions
Co-CEO, Vice President of Corporate and includes John B. Henneman, III
Development, Secretary and General Exercise Period paragraph extends Option
Counsel exercise to three (3) years upon satisfaction
of clause (i) or (ii) of such paragraph
James M. Herriman,
Vice President of Product Development None
Uzi Ish-Hurwitz "Optionee" definition contains no exclusions
Co-CEO, Executive Vice President, Chief and includes Uzi Ish-Hurwitz
of Technical Operations and President, Exercise Period paragraph extends Option
Neuromedical Systems Israel Ltd. exercise to three (3) years upon satisfaction
of clause (i) or (ii) of such paragraph
Laurie J. Mango, M.D.
Vice President and Medical Director None
Stephen Ng, M.D.
President, NSI Asia Pacific Ltd. None
Andrew C. Panagy
Vice President, Marketing and Sales None
Henk Snyman, M.D.
President, NSI Europe B.V. None
Howard M. Solomon, M.D.
Vice President Medical Operations None
</TABLE>
<PAGE>
EXHIBIT 11. 0
NEUROMEDICAL SYSTEMS, INC.
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Weighted average
number of common
shares outstanding 30,930,953 29,450,247 30,891,052 29,117,267
Net loss for period $ (9,244,000) $ (9,588,000) $ (27,738,000) $ (23,813,000)
------------ ------------ ------------- --------------
Net loss per share $ (0.30) $ (0.33) $ (0.90) $ (0.82)
============ ============ ============= ==============
</TABLE>
1
<PAGE>
NEUROMEDICAL SYSTEMS, INC.
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------ -------------------------------
1997 1996 1997 1996
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 30,930,953 29,450,247 30,891,052 29,117,267
Assumed exercise of stock
options and warrants using
the treasury stock method (1) 534,931 3,110,686 919,447 3,420,283
------------- ------------ ------------- ---------------
Weighted average number of
common and common
equivalent shares outstanding 31,465,884 32,560,933 31,810,499 32,537,550
============= ============ ============= ===============
Net loss for period $ (9,244,000) $ (9,588,000) $ (27,738,000) $ (23,813,000)
------------- ------------ ------------- ---------------
Net loss per share $ (0.29) $ (0.29) $ (0.87) $ (0.73)
============= ============ ============= ===============
</TABLE>
(1) For purposes of calculating the number of shares issuable upon exercise of
outstanding stock options and warrants, the daily average closing stock price of
$7.22 was used for nine months of 1997, the closing stock price of $5.13 was
used for three months of 1997, and the closing stock price of $18.63 was used
for 1996.
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 22,642
<SECURITIES> 30,182
<RECEIVABLES> 2,865
<ALLOWANCES> (315)
<INVENTORY> 0
<CURRENT-ASSETS> 56,609
<PP&E> 29,561
<DEPRECIATION> (13,150)
<TOTAL-ASSETS> 75,375
<CURRENT-LIABILITIES> 9,721
<BONDS> 9,484
0
0
<COMMON> 3
<OTHER-SE> 56,167
<TOTAL-LIABILITY-AND-EQUITY> 75,375
<SALES> 0
<TOTAL-REVENUES> 6,407
<CGS> 0
<TOTAL-COSTS> 8,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,213
<INCOME-PRETAX> (27,738)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,738)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,738)
<EPS-PRIMARY> (.90)
<EPS-DILUTED> (.87)
</TABLE>
