FIRST AMENDMENT TO DISTRIBUTION AGREEMENT

Exhibit 10.1

FIRST AMENDMENT TO DISTRIBUTION AGREEMENT

THIS FIRST AMENDMENT TO DISTRIBUTION AGREEMENT (the “First Amendment”) is made this 14th day of December 2007 by and between ETHICON ENDO-SURGERY, INC. , an Ohio corporation, and NEOPROBE CORPORATION , a Delaware corporation.

      WHEREAS , the parties hereto are parties to a Distribution Agreement dated September 28, 1999 (the “Agreement”); and

      WHEREAS , the parties desire to amend the Agreement as set forth herein.

      NOW, THEREFORE , in consideration of the mutual promises and covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Agreement.

2. The term of this First Amendment shall commence on January 1, 2009 and shall terminate on December 31, 2013, unless the Agreement and this First Amendment are sooner terminated as provided in the Agreement. Within ten (10) business days of execution of this First Amendment, Ethicon shall pay Neoprobe Five Hundred Thousand US Dollars (US$500,000) as consideration for extending the term of the Agreement and as reimbursement for research and development work performed by Neoprobe.

3. Article 2 of the Agreement is hereby amended to include the following definitions:

     2.21 “Field” shall mean all intraoperative or imaging medical applications related to the use of hand-held instruments or devices in radiation detection procedures for the diagnostic treatment of oncology.

     2.22 “System” shall mean a combination of a control unit and a probe consisting of either a neo2000 model 2200 Control Unit used in connection with a reusable model 1017 14mm probe or one (1) model 1100 or model 1101 Bluetooth probe and shall include all standard accessories issued by Ethicon to customers in the United States (i.e., Model nos. 1013, 2009, 2010).

     2.23 “Transfer Price Adjustment” shall mean the difference, whether positive or negative, between the Provisional Transfer Price and the Actual Transfer Price.

4. Article 3 of the Agreement is hereby amended to include the following Paragraphs 3.4 and 3.5:

     3.4 Development and Supply Rights . Subject to the terms and conditions of this Agreement, Ethicon hereby appoints Neoprobe, and Neoprobe herby accepts appointment, as Ethicon’s exclusive supplier for all instruments and devices used for radiation detection within the Field on a worldwide basis during the Term. Ethicon further agrees that it will not directly, or indirectly through third parties, develop instruments or devices used for radiation detection within the Field, but that it will conduct such development activities solely through Neoprobe unless otherwise agreed to in writing between the Parties.

     3.5 Supply to Century Medical, Inc. (“CMI”) . The Parties acknowledge that Neoprobe has, since September 28, 1999, terminated all the outstanding distribution arrangements listed in Schedule 3.2 except with respect to the current distribution agreement in place between Neoprobe and CMI covering distribution, sales and marketing of substantially all of the Products in Japan. Ethicon has previously indicated to Neoprobe that Ethicon did not wish to add Japan to the Territory prior to the expiration of the original Term of this Agreement on December 31, 2008. The Parties therefore acknowledge that Neoprobe therefore has no further termination obligations under Section 3.2 of the Agreement. Neoprobe’s agreement with CMI is currently set to expire under its own terms on December 31, 2009. In the event Ethicon should desire to distribute the Products in Japan, it must notify Neoprobe in writing of this intention prior to January 15, 2009.

5. Paragraph 5.1 of the Agreement is hereby amended and restated in its entirety as follows:

     5.1 Supply of the Product . During the term of this Agreement, Neoprobe shall manufacture and sell the Products and Improved Products exclusively to Ethicon in accordance with the Specifications, and shall not sell, supply or distribute any Products or Improved Products to any third party except CMI. Neoprobe shall supply Ethicon (and its Affiliates) with all of those quantities of Products as ordered by Ethicon (and its Affiliates) pursuant to this Agreement.

6. Paragraph 5.3 of the Agreement is hereby deleted.

7. Paragraph 5.7 of the Agreement is hereby amended and restated in its entirety as follows:

     5.7 Transfer Price and Forecasts for New Products . The Parties will use commercially reasonable efforts to negotiate Transfer Prices, including Provisional Transfer Prices and forecasted demand, for New or Improved Products in accordance with Article 6.

8. Paragraph 5.20 of the Agreement is hereby amended and restated in its entirety as follows:

* Portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

 

     5.20 Extended Warranty Program . The Parties agree to use commercially reasonable efforts to sell and honor extended warranty arrangements in accordance with the terms of Schedule 5.20.

9. Paragraph 5.24(a) of the Agreement is hereby amended and restated in its entirety as follows:

     5.24 (a) Ethicon shall, within thirty (30) days from the end of each calendar quarter during the term of this Agreement, deliver to Neoprobe reports of actual sales prices and unit quantities from sales in the United States and preliminary reports of sales prices and unit quantities from sales from major markets outside the United States, as mutually agreed by the Parties. Ethicon shall, within sixty (60) days from the end of each calendar year during the term of this Agreement, deliver to Neoprobe reports of actual sales prices and unit quantities from sales on a worldwide basis. The reports of sales shall be in adequate detail to enable Neoprobe and Ethicon to estimate ASP (as defined by Schedule 5.2) for Products sold during the preceding calendar year. Neoprobe and Ethicon shall reasonably cooperate in calculating an estimate of the Transfer Price Adjustment, if any, due Neoprobe or Ethicon. Within ninety (90) days from the end of a Commercial Year (i.e., within 90 days of December 31 of each calendar year during the term of this Agreement), the parties shall use commercially reasonable efforts to reach written agreement on the amount of any Transfer Price Adjustment. In the event that Ethicon owes additional funds to Neoprobe, Ethicon shall pay such amount within thirty (30) days of reaching such agreement in writing. In the event that Neoprobe owes funds back to Ethicon, Neoprobe shall, within 30 days of reaching such agreement in writing, at Ethicon’s option, pay Ethicon such amount or prepare credit memo(s) to offset against the next delivery of Product(s) due to be delivered to Ethicon until such amount due shall be fully satisfied.

10. Paragraph 5.27 of the Agreement is hereby amended and restated in its entirety as follows:

     5.27 Exclusivity Maintenance Requirements . Ethicon has no obligation to purchase from Neoprobe any minimum dollar or unit volume of the Products; however, commencing in 2010 and, for each Commercial Year thereafter, Ethicon shall be required to sell not less than [*] percent ([*]%) of the number of Systems sold by Ethicon on a worldwide basis during the prior Commercial Year (the “Exclusivity Maintenance Requirement” or “EMR”). In the event Ethicon does not meet the EMR for any Commercial Year, within thirty (30) days following the expiration of such Commercial Year, Ethicon must either (a) pay to Neoprobe the additional amount (based on the ASP for the then most recently completed calendar quarter) that Neoprobe would have earned if Ethicon had met the EMR or (b) terminate Neoprobe’s exclusivity obligation to Ethicon under this Agreement. In no case can the EMR for the Second Commercial Year or any subsequent Commercial Years be less than [*] Systems.

11. Article 6 of the Agreement is hereby amended and restated in its entirety as follows:

ARTICLE 6 — PRODUCT IMPROVEMENTS
AND RESEARCH AND DEVELOPMENT

     6.1 Purpose of Research and Development . The Parties agree that a key objective of their relationship is the further commercialization of Products and support the development of New Products and Improved Products that are compatible and complementary with existing Products, and that function in a manner designed to protect, to the maximum extent reasonably possible, the intellectual property rights of the parties and the distinctiveness of the Products in the marketplace. The Parties therefore agree that they will design or redesign their respective products for use in the Field consistent with the foregoing objectives. Without limiting the foregoing, in order to accomplish this objective, the Parties have agreed to establish a Development Committee (the “Development Committee”) as defined in Section 6.2 below.

     6.2 Development Committee . The planning, direction and activities of the research and development program shall be under the coordination of the Development Committee, which shall consist of four members. Responsibilities of the Development Committee shall include, but shall not be limited to, discussion and communications concerning strategies for further research and development of New Products and Improved Products, and development of product designs to assure that Products are compatible and complementary to each other and function in a manner designed to protect, to the maximum extent reasonably possible, the intellectual property rights of the Parties and the distinctiveness of the Products in the marketplace. Neoprobe and Ethicon shall each have two (2) representatives on the Development Committee. Each Party shall name, and may remove and replace at any time without the consent of the other Party, either of its representatives. The Development Committee may meet by telephone conference or other similar means. Notwithstanding the foregoing, the Development Committee shall not have any authority to alter in any way the substantive rights of the parties hereto set forth in this Agreement.

     6.3 Project Review Process . The Development Committee shall meet no less frequently than semi-annually to review ongoing status of active projects, new project concepts and project plans. Should Ethicon decide to fund development of any project that may result in a New Product or Improved Product, Neoprobe will present to Ethicon in writing a project plan including, at a minimum, specifications for the potential product, a budget, and a development timetable. In addition, the parties will negotiate in good faith Provisional Transfer Prices and purchase commitments, if any related to the potential product. Ethicon will have sixty (60) days from presentation of the project plan to decide whether or not to fund the project. Should Ethicon decline to fund the development or not respond on a timely basis, Neoprobe may elect to fund the project at its own expense. Following completion of a functional prototype for a New Product or Improved Product, Neoprobe will be obligated to present the prototype to Ethicon for evaluation. Ethicon and Neoprobe will review the prototype and related materials and use commercially reasonable efforts to negotiate Transfer Prices, Provisional Transfer Prices and purchase commitments. If Ethicon declines to negotiate or if the parties

cannot agree on a Provisional Transfer Price and purchase commitment within ninety (90) days following presentation of the prototype, Neoprobe will be free to distribute the product through third parties, provided that the terms of distribution with third parties are not more favorable to Neoprobe than the terms of distribution discussed with Ethicon.

     6.4 Ethicon Requested Development Projects . Should Ethicon wish to develop a product with a third party for use within the Field that may be considered to compete with a Product, Ethicon will request, in writing, Neoprobe to submit a proposal on the development project. Ethicon’s request for the development proposal shall include, at a minimum, summary specifications for the potential product, a target development budget, a development timetable and a target market price. Neoprobe will have sixty (60) days from presentation of the proposal request to determine whether or not to submit a proposal for the project, and to notify Ethicon of its decision. Should Neoprobe decline to submit a proposal, Ethicon may engage a third party to develop the potential product. Should Neoprobe decide to submit a proposal, Neoprobe will have an additional sixty (60) days to submit a formal proposal. Neoprobe will then present to Ethicon in writing a project plan including, at a minimum, specifications for the potential product, a budget, and a development timetable. Ethicon and Neoprobe agree to use commercially reasonable efforts to negotiate for no less than (90) days from presentation of the details of the project plan, including, but not limited to, the development budget and timetable, the level of funding and/or resources to be committed by each Party, Transfer Price terms, Provisional Transfer Prices and purchase commitments. If the parties cannot agree on terms within ninety (90) days, Ethicon will be free to engage third parties to develop the potential product, provided that the terms of development and/or potential distribution with third parties are not more favorable to Ethicon than the terms of development and/or distribution discussed with Neoprobe.

     6.5 New and Improved Products . If the Parties agree on Transfer Price terms, Provisional Transfer Prices and purchase commitments for any New Product or Improved Product pursuant to Sections 6.3 or 6.4, such New Product or Improved Product will be added to the Agreement and shall become a Product within the meaning of Section 2.15.

12. Paragraph 11.1 of the Agreement is hereby amended and restated in its entirety as follows:

     11.1 Warranty . Neoprobe warrants during the warranty period set forth under Section 11.2 below that all Products delivered to Ethicon under this Agreement shall be manufactured in a