<PAGE> 1
UNITED STATES
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 June 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 number: 1-12529
NETMED, INC.
(Exact name of Registrant as specified in its charter)
OHIO 31-1282391
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
425 METRO PLACE NORTH, SUITE 140, DUBLIN, OHIO
43017 (Address of principal executive offices, including zip code)
(614) 793-9356
(Registrant's telephone number, including area code)
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 report(s), and (2) has been subject to such
filing requirement for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 10,947,114 common
shares, without par value, on June 30, 1997.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets December 31, 1996 1
and June 30, 1997
Statements of Operations For the Three Months Ended
and the Six Months Ended June 30, 1997 and 1996 2
Statements of Cash Flows For the Six Months Ended
June 30, 1997 and 1996 3
Notes to Financial Statements -
June 30, 1997 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. N/A
Item 2. Changes in Securities. N/A
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. N/A
Item 5. Other Information. N/A
Item 6. Exhibits and Reports on Form 8-K. 9
Signatures 10
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NETMED, INC.
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited)
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 213,948 $ 142,074
Accounts receivable 319,526 175,512
Investment in NSI--available for sale 3,165,138 9,238,503
Prepaid assets 20,766 28,394
----------------------------
Total current assets 3,719,378 9,584,483
Notes receivable - NSI 21,443 21,443
Furniture and equipment (net of
accumulated depreciation) 27,620 28,034
Deferred taxes 628,703 744,162
Deposits and other assets 6,467 1,468
----------------------------
Total assets $ 4,403,611 $10,379,590
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 120,365 $ 97,625
Accrued expenses 294,847 223,536
Loan payable 140,913 96,909
Other liabilities 40,000 29,844
----------------------------
Total current liabilities 596,125 447,914
Deferred taxes 628,703 2,896,609
Stockholders' equity:
Common stock 4,012,884 3,881,605
Unrealized gains on available-for-sale
securities net of deferred taxes 552,905 3,954,764
Retained deficit (1,387,006) (801,302)
----------------------------
Total stockholders' equity 3,178,783 7,035,067
----------------------------
Total liabilities and stockholders' equity $ 4,403,611 $10,379,590
============================
</TABLE>
See accompanying notes.
1
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NETMED, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Royalty revenue $ 214,255 $ 13,546 $ 339,608 $ 27,099
Operating expenses:
Salaries and benefits 428,477 76,663 762,557 146,733
Sales and marketing 224,482 35,349 376,657 52,533
General and administrative 216,594 31,882 351,095 57,741
Business development 15,684 -- 59,345 --
Merger (Note 8) -- 97,837 -- 134,450
------------------------------------------------------------
Total operating expense 885,237 241,731 1,549,654 391,457
------------------------------------------------------------
Operating loss (670,982) (228,185) (1,210,046) (364,358)
Other income (expense):
Interest income 2,061 4,861 2,099 10,871
Interest expense (624) -- (4,884) --
Gain on available-for-sale securities 433,007 -- 745,056 --
Equity loss in partnerships -- (2,816) -- (4,091)
------------------------------------------------------------
Total other income 434,444 2,045 742,271 6,780
------------------------------------------------------------
Loss before income taxes (236,538) (226,140) (467,775) (357,578)
Income tax expense (benefit) 202,419 (69,426) 117,419 (122,001)
------------------------------------------------------------
Net loss $ (438,957) $ (156,714) $ (585,194) $ (235,577)
============================================================
Net loss per share ($0.04) ($0.03) ($0.05) ($0.04)
============================================================
Shares used in computation 10,947,114 6,072,936 10,946,316 6,072,936
============================================================
</TABLE>
See accompanying notes.
2
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NETMED, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (585,194) $(235,577)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Depreciation and amortization 7,200 3,000
Change in deferred tax assets 115,459 (122,001)
Gain on available-for-sale securities (745,056) --
Deferred compensation 131,275 --
Equity (income) loss in partnership -- 4,091
Changes in operating assets and liabilities:
Accounts receivable (144,014) (95,638)
Prepaid assets 7,628 --
Deposits and other assets (4,999)
Accounts payable 22,740 159,741
Accrued expenses and other liabilities 71,311 (107,247)
Due from related entities -- (227,206)
Other liabilities 10,156 --
--------------------------
Net cash used in operating activities (1,113,494) (620,837)
--------------------------
INVESTING ACTIVITIES
Sale of NSI stock 1,148,106 --
Notes receivable-NSI -- 29,637
Purchase of furniture and equipment (6,742) --
--------------------------
Net cash provided by investing activities 1,141,364 29,637
--------------------------
FINANCING ACTIVITIES
Proceeds from margin account 44,004 --
--------------------------
Net cash provided by financing activities 44,004 --
--------------------------
Net increase (decrease) in cash 71,874 (591,200)
Cash and cash equivalents at beginning of period 142,074 811,359
--------------------------
Cash and cash equivalents at end of period $ 213,948 $ 220,159
==========================
</TABLE>
See accompanying notes.
3
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NETMED, INC.
Notes to Financial Statements
(Unaudited)
June 30, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and 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. Operating results for the six month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the financial
statements and footnotes thereto included in the NetMed, Inc. Form 10-K for the
year ended December 31, 1996 as filed with the Securities and Exchange
Commission.
NOTE B-MERGER
On December 5, 1996 the Company shareholders approved an Agreement and Plan of
Merger with Cytology Indiana, Inc., Indiana Cytology Review Company, ER Group,
Inc., CCWP Partners, Inc., and Carolina Cytology, Inc. On December 16, 1996 the
merger was declared effective and the Company changed its name to NetMed, Inc.
NetMed, Inc. has the rights to market the PAPNET(R) System and PAPNET(R) Service
in Ohio, Kentucky, Missouri, Georgia, North Carolina and the Consolidated
Statistical Area of Chicago. Unaudited pro forma results of operations for the
six months ended June 30, 1996, assuming the merger had occurred as of January
1, 1996, are presented below. The pro forma amounts include adjustments that the
Company believes are reasonable.
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Royalty revenue $ 50,312
Operating loss (643,247)
Net loss (478,958)
Net loss per share (.04)
</TABLE>
NOTE C-NET LOSS PER SHARE
The net loss per share has been calculated based on the weighted average number
of common shares outstanding. In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings Per Share" (SFAS 128). SFAS
128 requires adoption for periods ending after December 15, 1997. Until that
time, the Company is required to continue calculating earnings per share (EPS)
in accordance with Accounting Principles Board Opinion No. 15. The Company has
calculated "Basic EPS" and "Diluted EPS" for the three month and six month
period ended June 30, 1997 in accordance with SFAS 128 and the amounts would not
differ from that disclosed in the accompanying statement of operations for net
loss per share.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
NetMed, Inc., formerly known as Papnet of Ohio, Inc., (the "Company"),
is an Ohio corporation engaged in the business of acquiring, developing and
marketing medical and health-related technologies. The Company's revenues are
currently derived principally from the marketing of the PAPNET(R) Testing System
and Service, which are proprietary products of Neuromedical Systems, Inc.,
("NSI"). The Company is also currently engaged in the development of an oxygen
concentration device which it plans to manufacture and sell in the home
healthcare market.
The PAPNET(R) Testing System is a semi-automated cancer detection
system for the review of cell, tissue or body fluid specimens, including but not
limited to cervical cytology specimens. The PAPNET(R) Service permits
laboratories to submit slides containing such specimens ("Slides") to one of
NSI's central facilities for image processing employing NSI's patented neural
network technology. NSI returns the Slides and digital tape or CD-ROM containing
processed images for evaluation by NSI-trained cytotechnologists.
The PAPNET(R) Testing System was approved by the FDA for commercial use
in the United States on November 8, 1995. Prior to that time, it was permitted
to be utilized in the United States on an investigational basis only, and NSI
was permitted to derive revenue with respect thereto only to recover certain of
its costs. Beginning January 1, 1996, the Company and NSI began the task of
building a sales force and familiarizing doctors and laboratories with the
benefits of the PAPNET(R) Testing System and service. Beginning in September of
1996, the commercial launch of the product was initiated with a national
advertising campaign.
On December 5, 1996, the Company's shareholders approved an Agreement
and Plan of Merger (the "Merger Agreement") whereby Cytology Indiana, Inc.,
Indiana Cytology Review Company, ER Group, Inc., CCWP Partners, Inc., and
Carolina Cytology, Inc. (the "Predecessor Companies") were merged with and into
Papnet of Ohio, Inc. (the "Merger"). The Merger was effective on December 16,
1996, and the Company issued 4,849,988 common shares, without par value, in
exchange for the issued and outstanding shares of the Predecessor Companies.
Pursuant to the Merger Agreement, the Company changed its name to NetMed, Inc.,
and its common shares began trading on the American Stock Exchange on December
18, 1996 under the symbol "NMD".
As a result of the Merger, the Company has the marketing rights to the
PAPNET(R) Testing System and Service in Ohio, Kentucky, Missouri, Georgia, North
Carolina and the Consolidated Statistical Area of Chicago. The Company's
marketing rights are exclusive within these territories, subject to the right of
NSI to conduct marketing and sales activities therein. However, because the
royalties paid to the Company by NSI are based on revenues recognized by NSI
from activities (including any sales by NSI) in the licensed territories, NSI's
sales activities therein benefit the Company.
While the Company's primary focus has been, and will continue to be,
exploiting its rights under the NSI license, the Company will also consider the
acquisition of other healthcare related technologies in the future. On March 3,
1997, the Company announced that it had entered an agreement with CeramPhysics,
Inc. of Westerville, Ohio ("Ceram"), pursuant to which the Company has the right
to acquire control of a newly-organized corporation holding a world-wide license
to Ceram's patented oxygen generation technology, which is exclusive as to all
applications except oxygen sensors and fuel cells.
This report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in Item I of
the Company's Form 10-K as filed with the United States Securities and Exchange
Commission, File No. 1-12529, in the section titled "Business Risks".
For accounting purposes, the financial statements of the Company for
1996 and prior years are those of Papnet of Ohio, Inc. The results of operations
for the merged entities are reported on a prospective basis commencing
5
<PAGE> 8
December 16, 1996. The following discussion therefore includes the operations of
Papnet of Ohio, Inc. from January 1, 1996 through June 30, 1996, and the
consolidated operations of all entities from January 1, 1997 through June 30,
1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
As a result of the FDA approval mentioned above, the commercial launch
of the product in September 1996 and an increase in the number of sales
representatives, the number of Slides processed in the Company's territories
increased to 26,100 Slides for the three months ended June 30, 1997, from 15,202
Slides for the quarter ended March 31, 1997 and from 2,626 Slides for the three
months ended June 30, 1996. On a proforma basis, 4,440 Slides were processed for
NetMed and the Predecessor Companies for the quarter ended June 30, 1996.
Royalty revenue was $214,255 for the three months ended June 30, 1997, an
increase from $13,546 for the three months ended June 30, 1996.
In February 1997, the Company entered into an agreement with Blue Cross
Blue Shield Mutual of Ohio, now known as Medical Mutual of Ohio ("MMO"), whereby
MMO agreed to cover the cost of the PAPNET(R) test for all members. In addition,
MMO has agreed to strongly recommend to its clinicians and laboratories that all
negative Pap smears covered by its benefit plans be examined using PAPNET(R)
testing. MMO is one of the largest third party payers for health care in the
State of Ohio, with approximately 1.5 million covered members. While management
believes that this agreement will eventually increase the number of Slides
processed during 1997, the Company is unable to quantify the impact of the
agreement on Slide volume for the three months ended June 30, 1997, although it
believes such impact was minimal.
The number of employees of the Company increased to 15 during the three
months ended June 30, 1997, an increase of 10 employees from the same period the
previous year. The increase consisted of an additional six sales representatives
and four administrative employees. As a result of granting options to certain
employees and directors, the Company recognized compensation expense of $53,787
for the three months ended June 30, 1997. This amount has been included in
salaries and benefits. As a result of the headcount increases mentioned above
and the expense for the grant of options, salary and benefit expense increased
to $428,477 for the three months ended June 30, 1997 from $76,663 for the three
months ended June 30, 1996.
Sales and marketing expense other than salaries and benefits increased
to $224,482 for the three months ended June 30, 1997 from $35,349 for the three
months ended June 30, 1996. In addition to the direct expenses of the sales
representatives in developing their respective sales territories, the Company
incurred expenses for advertising, promotional materials and sales literature of
$142,503 for the quarter ended June 30,1997.
General and administrative expenses increased to $216,594 for the three
months ended June 30, 1997 compared to $31,882 for the three months ended June
30, 1996. The increase in general and administrative expense is primarily due to
an increase in accounting and legal costs as well as the increase in headcount
from two to six administrative employees.
Business development expenses of $15,684 were incurred during the three
months ended June 30, 1997 as the Company continued its development of an oxygen
device, that if successfully developed, will be sold to the home healthcare
market.
During 1995, the Company began discussions with the Predecessor
Companies that resulted in the Merger that was effective December 16, 1996. For
the three months ended June 30, 1996, the Company incurred one time merger
expenses of $97,837. No such expenses were incurred in the three months ended
June 30, 1997, and no further expenses are anticipated for the remainder of 1997
related to this transaction.
6
<PAGE> 9
The Company recognized a gain on available-for-sale securities of
$433,007 for the three months ended June 30, 1997, resulting from the sale of
80,000 shares of NSI common stock held by the Company at net prices ranging from
$5.07 to $10.13 per share. There were no sales of securities during the three
months ended June 30, 1996.
Interest income for the three months ended June 30, 1997 was $2,061
compared to $4,861 for the same period the prior year. The decrease was a result
of lower available cash balances to invest, as cash balances have been utilized
to fund the negative cash flow from operations.
The Company has incurred loans payable of $140,913 as of June 30, 1997.
The loans are the result of opening margin accounts utilizing NSI common stock
for collateral. Interest expense as a result of these loans was $624 for the
three months ended June 30, 1997.
The Company recognized income tax expense of $202,419 for the three
months ended June 30, 1997, compared to an income tax benefit of $69,426 for the
three months ended June 30, 1996. The expense for the second quarter of 1997 is
the result of recording a valuation allowance against the deferred tax asset by
$288,000. The deferred tax liability was reduced during the quarter as a result
of the decline in market value of the NSI common stock. Since the deferred tax
liability is subject to the fluctuations in market price of the NSI common
stock, the Company may recognize additional expense or benefit in future
periods.
The equity in income or loss in partnerships reported for the second
quarter of 1996 is the Company's percentage of income or loss in Carolina
Cytology Licensing Company and Carolina Cytology Warrant Partnership. Both
entities were Predecessor Companies and were merged into the Company on the
effective date of the Merger, and consequently no similar item is reported for
the same period in 1997.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
As a result of the FDA approval mentioned above, the commercial launch
of the product in September 1996 and an increase in the number of sales
representatives, the number of Slides processed in the Company's territories
increased to 41,302 Slides for the six months ended June 30, 1997 from 4,216
Slides for the six months ended June 30, 1996. On a proforma basis, 6,469 Slides
were processed for NetMed and the Predecessor Companies for the six months ended
June 30, 1996. Royalty revenue was $339,608 for the six months ended June 30,
1997, an increase from $27,099 for the six months ended June 30, 1996.
The number of employees of the Company increased to 15 during the six
months ended June 30, 1997, an increase of 10 employees from the same period the
previous year. The increase consisted of an additional six sales representatives
and four administrative employees. As a result of granting options to certain
employees and directors during the six months ended June 30, 1997, the Company
incurred compensation expense of $131,275. This amount has been included in
salaries and benefits. As a result of the headcount increases mentioned above
and the expense for the grant of options, salary and benefit expense increased
to $762,557 for the six months ended June 30, 1997 from $146,733 for the six
months ended June 30, 1996.
Sales and marketing expense other than salaries and benefits increased
to $376,657 for the six months ended June 30, 1997 from $52,533 for the six
months ended June 30, 1996. In addition to the direct expenses of the sales
representatives in developing their respective sales territories, the Company
incurred expenses for advertising, promotional materials and sales literature of
$183,182. The Company incurred a total of $47,500 for professional services in
its efforts to expand the reimbursement of the cost of the PAPNET(R) test by
healthcare providers and for employment agency fees for the additional sales
representatives hired during the six months ended June 30, 1997.
General and administrative expenses increased to $351,095 for the six
months ended June 30, 1997 compared to $57,741 for the six months ended June 30,
1996. The increase in general and administrative expense is primarily due to an
increase in accounting, legal and stock exchange costs as well as the increase
in headcount from two to six administrative employees.
7
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Consistent with the Company's plan to acquire compatible business
technologies, the Company incurred costs of $59,345 for the six months ended
June 30, 1997 in the negotiation and evaluation of additional opportunities in
medical technology. On March 3, 1997, the Company announced that it had entered
an agreement with CeramPhysics, Inc. of Westerville, Ohio ("Ceram"), pursuant to
which the Company has the right to acquire control of a newly-organized
corporation holding a world-wide license to Ceram's patented oxygen generation
technology, which is exclusive as to all applications except oxygen sensors and
fuel cells.
During 1995, the Company began discussions with the Predecessor
Companies that resulted in the Merger that was effective December 16, 1996. For
the six months ended June 30, 1996, the Company incurred one time merger
expenses of $134,450. No expenses related to this transaction were incurred in
the six months ended June 30, 1997.
The Company recognized a gain on available-for-sale securities of
$745,056 for the six months ended June 30, 1997. There were no sales of
securities during the three months ended June 30, 1996. The increase is due to
the gain on the sale of 125,000 shares of NSI common stock held by the Company
at net prices ranging from $5.07 to $10.13 per share.
Interest income for the six months ended June 30, 1997 was $2,099
compared to $10,871 for the same period the prior year. The decrease was a
result of lower available cash balances to invest, as cash balances have been
utilized to fund the negative cash flow from operations.
The Company has incurred loans payable of $140,913 as of June 30, 1997.
The loans are the result of opening margin accounts utilizing NSI common stock
for collateral. Interest expense as a result of these loans was $4,884 for the
six months ended June 30, 1997.
The Company recognized income tax expense of $117,419 for the six
months ended June 30, 1997, compared to an income tax benefit of $122,001 for
the six months ended June 30, 1996. The expense for the first half of 1997 is
the result of recording a valuation allowance against the deferred tax asset by
$288,000. The deferred tax liability was reduced during the period as a result
of the decline in market value of the NSI common stock. Since the deferred tax
liability is subject to the fluctuations in market price of the NSI common
stock, the Company may recognize additional expense or benefit in future
periods.
The equity in income or loss in partnerships reported for the six
months ended June 30, 1996 is the Company's percentage of income or loss in
Carolina Cytology Licensing Company and Carolina Cytology Warrant Partnership.
Both entities were Predecessor Companies and were merged into the Company on the
effective date of the Merger, and consequently no similar item is reported for
the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily by the sale of NSI
common stock owned by the Company. The Company's combined cash and cash
equivalents totaled $213,948 at June 30, 1997, an increase of $71,874 from
December 31, 1996. The Company owns 572,246 unrestricted shares of NSI common
stock which can be liquidated in an orderly fashion to fund future operations.
NSI common stock closed trading at $5.53 per share on June 30, 1997 and at
$3.625 on July 23, 1997.
While the Company anticipates that its cash requirements will be
substantial for the immediate future, it believes its existing investments will
be adequate to meet those requirements. The cash requirements relate
specifically to the accounts and loan payable and accrued expenses at June 30,
1997 of approximately $600,000, the continuing negative cash flow generated from
operations on a monthly basis and the costs associated with the sales and
marketing efforts to healthcare providers, doctors, laboratories and direct to
the consumer during 1997 and potentially 1998. The sales and marketing expenses
include, but are not limited to, the cost of expanding the sales force, direct
advertising to consumers, advertising and promotion expense associated with the
implementation of the MMO contract and professional fees associated with
marketing to healthcare providers. The professional fees associated with
marketing
8
<PAGE> 11
to healthcare providers is necessary as the current sales force is responsible
for marketing primarily to doctors and laboratories. While management believes
that the above strategies will increase Slide volume, there can be no guarantee
as to the timing and the amount of increase, if any.
In addition to exploiting its rights under the license agreement with
NSI, the corporate mission of the Company is to become a well diversified health
care technology company founded upon proprietary products that offer a distinct
market advantage. The Company's intention is to follow the example of the
initial investment, the PAPNET(R) technology, in pursuing other opportunities in
healthcare technology. Specifically, the Company intends to make early
investments and applying the management and marketing resources of the Company
to develop and implement strategies which will substantially increase the value
of the investment over a period of two to four years. As opportunities become
available, the Company will require substantial funds in making the initial
investment and/or commercializing new healthcare products.
In pursuit of that strategy, the Company has recently embarked upon the
development of an oxygen generation/concentration device for use in home
healthcare, based upon technology acquired from Ceram. Pursuant to the
agreement, the Company will work with and loan up to $200,000 to Ceram to
complete the fabrication and testing of a ceramic element incorporating the
licensed technology, which will be capable of generating oxygen of a purity and
in quantities suitable for medical use. It is the Company's intention to
incorporate the element into an oxygen generation device which the Company will
manufacture and market for the home health care market. If the device is
acceptable to the Company, it has the right to acquire 95% of the capital stock
of the licensee for an additional $200,000 investment, with the remaining 5% to
be held by Ceram.
Thereafter, the Company would complete the development of a commercial
version of the device, proceed with obtaining appropriate regulatory approvals,
and commence manufacturing, marketing and distribution of the product. Such
activities are likely to require substantial expenditures in late 1997 and
during 1998, and depending upon the ultimate methods of manufacture, marketing
and distribution chosen by the Company, may require it to seek additional
capital in 1998.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Except for the historical information contained herein, the matters
discussed in this Form 10-Q include forward-looking statements that involve
risks and uncertainties, including, but not limited to, the Company's reliance
on a single product marketed under license from NSI, the corresponding
dependence on NSI's patents and proprietary technology, government regulation,
continuing losses from operations and negative operating cash flow, limited
marketing and sales history, the impact of third-party reimbursement decisions,
and other risks detailed in the Company's maost recent Annual Report on Form
10-K/A No. 1 and other Securities and Exchange Commission filings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit Exhibit Description
------- -------------------
<S> <C>
10(a) Employment Agreement between the
Registrant and David J. Richards, dated as of
April 1, 1997.
27 Financial Data Schedule.
</TABLE>
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(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the
period for which this report is filed.
PART II. OTHER INFORMATION
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-Q for the quarterly
period ended March 31, 1997 to be signed on its behalf by the undersigned,
thereto duly authorized.
NETMED, INC.
By: /s/ David J. Richards
-----------------------------------
David J. Richards, President*
By: /s/ Kenneth B. Leachman
-----------------------------------
Kenneth B. Leachman, Vice President
of Finance*
Dated: July 24, 1997
* In his capacity as President of the Registrant, Mr. Richards is
duly authorized to sign this Report on behalf of the Registrant.
In his capacity as Vice President of Finance, Mr. Leachman is the
Registrant's principal financial officer.
10
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT EXHIBIT INDEX
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
<S> <C> <C>
10(a) Employment Agreement
between the Registrant and
David J. Richards, dated as
of April 1, 1997.
27 Financial Data Schedule.
</TABLE>
11
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Exhibit 10(a)
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 1, 1997 (the "Commencement Date") between
NetMed, Inc., an Ohio corporation, with its principal offices located at 425
Metro Place North, Suite 140, Dublin, Ohio 43017 hereinafter the "Company"), and
David J. Richards, residing at 7964 Holyrood Court, Dublin, Ohio 43017
("Executive").
RECITALS
A. Executive was a founder of the Company and has served as its
President and a director since it was organized in 1989.
B. The Company desires to assure itself of the continued services of
Executive, on the terms and conditions hereinafter set forth.
STATEMENT OF AGREEMENT
In consideration of the foregoing, and of their mutual promises
contained herein, and intending to be legally bound thereby, the parties agree
as follows:
Section 1. Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" shall mean a corporation which, directly or indirectly,
controls, is controlled by or is under common control with the Company, and for
purposes hereof, "control" shall mean the ownership of 20% or more of the voting
shares of the corporation in question.
"Basic Salary" shall have the meaning assigned to it in Section 5 of
this Agreement.
"The Business" shall mean the business conducted by the Company in the
past and on the date of execution of this Agreement, including business
activities under investigation or in developmental stages, all other business
activities which flow therefrom by a reasonable expansion of the present
activities of the Company or any Affiliate, and all business activities which
may be developed by the Company or any Affiliate during the Term.
"Commencement Date" shall be the effective date of this Agreement, as
stated in the introductory paragraph.
"Confidential Information" shall include, without limitation by reason
of specification, any information, including, without limitation, trade
"know-how," trade secrets, customer lists, pricing policies, operational
methods, methods of doing business, technical processes, formulae, designs and
design projects, inventions, research projects, and other business affairs of
the Company, which is or are designed to be used in or are or may be useful in
connection with the business of the Company or any Affiliate, or which in the
case of any of these entities, results from any of their research or
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development activities, and which (i) is private or confidential in that it is
not generally known or available to the public, except as the result of
unauthorized disclosure by or information supplied by Executive, or (ii) which
gives the Company an opportunity or the possibility of obtaining an advantage
over competitors who may not know or use such information or who are not
lawfully permitted to use the same.
"Death/Disability Benefit" shall mean an amount equal to the amount of
Basic Salary payable to Executive during the year in which he dies or becomes
disabled; provided, however, that the Death/Disability Benefit shall be reduced
by any amount to be received by Executive or his designated beneficiary under
life or disability insurance policies, the premiums for which are paid for by
the Company.
"Employment Year" shall mean each twelve-month period, or part thereof,
during which Executive is employed hereunder, commencing on the Commencement
Date or on April 1 of any subsequent calendar year, the first such subsequent
Employment Year being the twelve-month period which will begin on April 1, 1998.
"Incentive Bonus" shall have the meaning assigned to it in Section 6.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Restricted Period" shall mean the term of employment of Executive
under this Agreement or any extension thereof and the twenty-four-month period
thereafter; provided, however, that the Restricted Period shall terminate
immediately upon the occurrence of any termination of the employment of
Executive under Sections 9.4, 9.5 or 9.6 of this Agreement.
"Subsidiary" shall mean a corporation, 50% or more of the outstanding
voting shares of which is owned or controlled directly or indirectly by the
Company.
"Term" shall mean the term of employment of Executive under this
Agreement.
"Termination Date" shall have the meaning assigned to it in Section 3.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
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Section 2. Employment and Duties of Executive.
2.1. Employment; Title; Duties. The Company hereby employs Executive,
and Executive hereby accepts appointment as, and his election as, the President
and Chief Executive Officer of the Company. In such capacity, Executive shall
render such services as are necessary and desirable to protect and advance the
best interests of the Company, acting in all instances under the supervision of
and in accordance with the policies set by the Board of Directors.
As President and Chief Executive Officer, Executive shall have general
executive authority over the management of the Company, subject to the direction
and control of the Board of Directors, including but not limited to the
authority to employ and terminate employees, to sign agreements and otherwise
commit the Company contractually, and to expend corporate funds for corporate
purposes.
2.2. Place of Employment. The principal place of employment of
Executive shall be within a twenty mile radius of Dublin, Ohio or such other
location as is consented to by Executive. It is however understood and agreed
that Executive may be required, in connection with the performance of his
duties, to work from time to time at other locations designated by the Board of
Directors or as required in connection with the Business of the Company. When
required to travel to and/or spend time at such other locations, Executive's
reasonable traveling and temporary living expenses shall be reimbursed to him by
the Company, upon his submittal of written expense reports, supported by
appropriate documentation and subject to the general reimbursement policies of
the Company applicable to executive officers.
2.3. Facilities. The Company shall provide the Executive with a fully
furnished office and secretarial assistance, and the facilities of the Company
shall be generally available to the Executive in the performance of his duties
pursuant to this Agreement, it being understood and contemplated by the parties
that all equipment, supplies and office personnel required in the performance of
the Executive's duties under this Agreement shall be supplied by the Company.
2.4. Performance of Duties. Executive shall devote substantially his
full working time, attention and efforts to the performance of his duties as an
executive of the Company, including any duties as are assigned him from time to
time by the Board of Directors. During the term of this Agreement, Executive
shall not engage in or become employed, directly or indirectly, in the
commercial or professional business of any other Person, without the prior
written consent of the Board of Directors of the Company, nor shall he act as a
consultant to or provide any services to, whether on a remunerative basis or
otherwise, the commercial or professional business of any other Person, without
such written consent, which, in both instances, may be given or withheld by the
Board of Directors in its absolute discretion.
2.5. Services to Subsidiaries. During the term of this Agreement,
Executive shall also accept election or appointment, and serve, during all or
any part of the Term, as an officer and
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director of any Subsidiary of the Company, and perform the duties appropriate
thereto, without additional compensation other than as set forth in this
Agreement.
Section 3. Term of Employment.
The employment of Executive pursuant to this Agreement shall commence
as of the Commencement Date and end on the earlier of (i) March 31, 2000, or
(ii) the first date on which such employment is terminated in accordance with
Section 9 hereof (the "Termination Date").
Section 4. Compensation and Benefits.
The Company shall pay Executive as compensation for all of the services
to be rendered by him hereunder during the Term, and in consideration of the
various restrictions imposed upon Executive during the Term and the Restricted
Period, and otherwise under this Agreement, the Basic Salary and other benefits
as provided for and determined pursuant to Sections 4 to 8, inclusive, of this
Agreement.
Section 5. Basic Salary.
The Company shall pay Executive, as compensation for all of the
services to be by him rendered hereunder during the Term, a minimum annual base
salary of $225,000.00 (the "Basic Salary"), which may be increased, but not
decreased, from time to time by the Board of Directors (or its Compensation
Committee). Such Basic Salary shall be payable in accordance with the regular
payroll practices of the Company for executives, less such deductions or amounts
as are required to be deducted or withheld by applicable laws or regulations and
less such other deductions or amounts, if any, as are authorized by Executive.
Section 6. Incentive Bonus. Within 60 days after the last day of each
Employment Year, the Company shall pay Executive as additional compensation (the
"Incentive Bonus") an amount up to a maximum of 100% of the Basic Salary for
such Employment Year, to be determined according to reasonable criteria
established by the Board of Directors (or its Compensation Committee), after
consultation with Executive, at the beginning of such Employment Year.
Section 7. Additional Benefits. The Company shall provide the following
additional benefits to Executive during the Term:
(i) payment of an automobile allowance in the amount of $1,000
per month;
(ii) payment of premiums on a term insurance policy or
policies on Executive's life with a minimum aggregate face amount of
$1,000,000, such policies to be owned by the Executive, it being is
understood that the Company shall report the amount of such premiums to
the Internal Revenue Service in accordance with the Internal Revenue
Code and the Regulations issued thereunder as income payable to
Executive;
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(iii) participation on an equitable basis in all group life,
medical, hospitalization, accident/disability insurance plans,
retirement plans, health and other benefit programs offered by the
Company to any of its executive employees;
(iv) payment of reasonable country club dues and related
business entertainment expenses of Executive;
(v) reimbursement of all ordinary and necessary travel,
entertainment and other business expenses incurred by the Executive in
the performance of his duties hereunder, in accordance with reporting
and reimbursement policies established by the Board of Directors
applicable to executive officers;
(vi) four weeks vacation with pay in each Employment Year,
subject to reasonable policies of the Company with respect to carryover
of unused vacation time or pay from year to year; and
(vii) participation in a non-qualified executive retirement
plan with terms reasonably acceptable to the Executive and the Board of
Directors of the Company.
Section 8. Grant of Stock Options.
8.1. Grant. Pursuant to the terms of the Company's Amended and Restated
1995 Stock Option Plan (the "Plan") the Company hereby grants to Executive
("Optionee") an option (the "Option") to purchase 150,000 of the Company's no
par value common shares ("Common Shares"). The Option shall be an Nonstatutory
Stock Option as defined in the Plan. The right to acquire such Common Shares
pursuant to the Option shall vest at the rate of 50,000 shares for each
Employment Year during the Term when Executive shall be in the employ of the
Company or any successor in interest thereto, on the last day of the relevant
Employment Year. The exercise price for the 50,000 shares vesting in the first
Employment Year shall be $6.94 per share, for the 50,000 shares vesting in the
second Employment Year shall be $10.00 per share, and for the 50,000 shares
vesting in the third Employment Year shall be $12.00 per share. Executive may
exercise said Option, in whole or in part, at any time or from time to time, but
only with respect to stock the option rights to which have previously vested in
him hereunder, and only on or prior to April 1, 2007. Other terms and conditions
of the Option (including without limitation provisions relating to
transferability, manner of exercise, sale of the Option shares, termination of
the Option, and adjustment of the number of Common Shares subject to the Option)
shall be as provided in the Plan to the extent not otherwise inconsistent with
this Agreement.
8.2. Further Provisions for Termination of Option. Executive's Option
rights hereunder shall expire, to the extent not theretofore vested in Executive
under Section 8.1, in the event of voluntary termination of employment by
Executive under Section 9.7, or in the event of the Company's termination of
Executive's employment pursuant to Section 9.3 hereof. However such
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expiration or termination shall not derogate from Executive's rights with
respect to any portion of the Option which has previously vested in him pursuant
to Section 8.1.
8.3. Reservation of Stock. The Company shall at all times prior to the
expiration of the Option reserve sufficient common shares as are subject to the
Option.
8.4. Restriction with Respect to Stock. The Company shall use its best
efforts to register the common shares issuable upon exercise of the Option under
the Securities Act of 1933 (the "Act") on Form S-8 (or any successor form for
registration of shares issuable pursuant to stock option or similar employee
benefit plans) and to maintain the effectiveness of such registration during the
term of the Option. If despite the best efforts of the Company the common shares
of issuable upon any exercise of the Option are not registered under the Act at
the time of exercise, then, unless the said shares have previously, or will
simultaneously or immediately thereafter be registered under the Act, the person
exercising the Option shall, as a condition of its exercise, furnish the Company
with a written statement signed by him representing and agreeing (i) that he is
purchasing the stock subject to this Option for investment and not with a view
to a distribution, (ii) that he will not offer, sell, pledge or otherwise
transfer the shares acquired through the exercise of this Option, without having
first obtained and delivered to Company an opinion of counsel satisfactory to
the Company to the effect that such transfer will not be in violation of the
Act, or a letter from the staff of the Securities and Exchange Commission to the
effect that no action will be taken or recommended by such staff in the event of
such transfer, and (iii) that the Company is authorized to inscribe on all share
certificates issued upon the exercise of the Option a legend referring to the
provisions of this paragraph.
Section 9. Termination of Employment.
9.1. Death. If Executive dies during the Term, (i) his employment under
this Agreement shall automatically terminate on the date of his death, and (ii)
within sixty (60) days of his death, the Company shall pay his designated
beneficiary any unpaid portion of his Basic Salary through the date of death,
any accrued vacation pay, reimbursement for previously unreimbursed business
expenses, and an amount equal to the Death/Disability Benefit. Executive agrees
to cooperate with the Company fully and promptly in applying for any insurance
which the Company may elect to obtain to insure the Death/Disability Benefit. If
Executive dies during the Term, his rights to receive his Incentive Bonus
hereunder for any Employment Year which has ended shall remain vested, but his
right to receive his Incentive Bonus for the Employment Year in which he has
died shall be prorated to the date of his death. If Executive dies during the
Term, the Option granted to him under Section 8 of this Agreement shall be fully
vested as of the date of his death.
9.2. Disability. If, during the Term, Executive becomes physically or
mentally disabled, whether totally or partially, so that he is unable to perform
substantially all his services hereunder for (i) a period of six (6) consecutive
months, or (ii) for shorter periods aggregating six (6) months during any twelve
(12) month period, the Company may, at any time after the last day of the sixth
consecutive month of disability, or after the day on which the shorter periods
of disability shall have
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equaled an aggregate of six (6) months, terminate Executive's employment by
written notice to him. Executive's employment, Basic Salary and benefits
hereunder shall continue during any period of disability until written notice of
termination is provided under this Section 9.2. The date on which Company sends
written notice of termination under this Section 9.2 shall be the Termination
Date hereunder. In case of any dispute as to whether or not Executive is
disabled within the meaning of this Section 9.2, the determination of disability
is to be made by a licensed physician selected by the Board of Directors of the
Company and acceptable to Executive, in his reasonable judgment, which
physician's decision shall be final and binding on the parties hereto. In the
event Executive's employment is terminated pursuant to this Section 9.2, the
Company shall pay him the Death/Disability Benefit. If Executive's employment is
terminated under this Subsection 9.2, his right to receive his Incentive Bonus
hereunder for any Employment Year which has ended shall remain vested, but his
right to receive his Incentive Bonus for the year in which he is terminated
shall be prorated to the Termination Date, and if Executive shall have no
further right to receive Incentive Bonus except as stated hereinabove. In
addition, the Option granted to Executive pursuant to Section 8 hereof shall be
deemed to have become fully vested in him pursuant to and subject to the
provisions of said Section.
9.3. Termination for Good Cause. (a) Except as otherwise provided in
this Agreement, the Company may terminate the employment of the Executive
hereunder only for good cause and upon written notice.
(b) As used in this Section 9.3, "good cause" shall include:
(i) the Executive's is formally charged with a felony (other
than a traffic offense), that in the reasonable good faith judgment of the Board
of Directors, results in material damage to the Company or its reputation, or
would materially interfere with the performance of Executive's obligations under
this Agreement;
(ii) acts by Executive of fraud, embezzlement, theft or other
material dishonesty directed against the Company;
(iii) the breach by Executive of any material obligation to
the Company under this Agreement which remains uncorrected after written notice
of such breach to the Executive and a reasonable opportunity to cure;
(iv) the Executive's willful and persistent failure to take
actions permitted by law and necessary to implement directives of the Board of
Directors which have been communicated to him in writing, provided that minutes
of a Board of Directors meeting attended in its entirety by the Executive shall
be deemed communicated in writing to the Executive;
(v) any condition which either results from the Employee's
substantial dependence, as reasonably determined in good faith by the Board of
Directors, on alcohol, or on any narcotic drug or other controlled or illegal
substance; but if such determination is disputed by the
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Executive, the Company and the Executive agree to abide by the diagnosis of a
physician selected by the Board of Directors from a list of three physicians
provided by Executive, and Executive hereby consents to the release to the Board
of Directors of such diagnosis and any associated test results.
(c) The date of the written notice provided under Section 9.3(a) shall
be the Termination Date. If Executive's employment is terminated for good cause
under this Section 9.3, then Executive shall be entitled to receive only the
following payments: any portion of his Basic Salary and benefits accrued to the
Termination Date and not theretofore paid to him (including vacation pay); any
Incentive Bonus to which he is entitled for any completed Employment Year under
this Agreement which has not theretofore been paid to him; and the right to
exercise any portion of the Option granted to him hereunder which has previously
vested in him under the provisions of Section 8, plus reimbursement for any
expenses of Executive which are reimbursable under this Agreement, which
expenses have been incurred prior to the Termination Date and not previously
reimbursed. Except as set forth in the immediately preceding sentence, all of
Executive's rights to compensation hereunder shall be terminated as of the
Termination Date.
9.4. Termination Other Than for Good Cause. In the event the Company
terminates the employment of Executive other than pursuant Sections 9.2, or 9.3,
the Company shall provide the Employee with at least two (2) weeks' prior
written notice of termination, which notice shall state a Termination Date.
Following such termination, the Company shall continue to pay Executive his
Basic Salary and provide health insurance benefits as provided in this Agreement
for a period of eighteen (18) months from the Termination Date, and shall
promptly reimburse any previously unreimbursed business expenses. Executive's
right to receive Incentive Bonus for each completed Employment Year shall remain
in effect, and Executive's right to receive Incentive Bonus on account of the
year of his termination shall be prorated to the date of such termination. In
addition, the Option granted to Executive pursuant to Section 8 hereof shall be
deemed to have become fully vested in him pursuant to and subject to the
provisions of said Section.
9.5. Constructive Termination of Executive. In the event the Company
removes Executive from the position of Chief Executive Officer, President, or
Director of the Company without his consent (or fails to re-elect Executive as
President and Chief Executive Officer at any meeting of the Board of Directors
of the Company held for the purpose of electing or re-electing officers of the
Company) or substantially changes his duties or his reporting responsibility to
the Board of Directors under Section 2.1, the employment of Executive, at his
option, exercisable by written notice given to the Company at any time within
sixty (60) days following such event (time of notice being deemed to be of the
essence), shall be deemed to have been constructively terminated by the Company
hereunder, as of the date of Executive's notice; provided, however, that such
constructive termination shall not be deemed a breach by the Company of its
obligations under this Agreement and further provided, however, that termination
for cause pursuant to Section 9.3 shall make the provisions of this Section 9.5
inapplicable. If Executive's employment is terminated under this Section 9.5,
the Company shall continue to pay Executive his Basic Salary and provide health
insurance benefits as provided in this Agreement for a period of eighteen (18)
months from the
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Termination Date, and shall promptly reimburse any previously unreimbursed
business expenses. Executive's right to receive Incentive Bonus for each
completed Employment Year shall remain in effect, and Executive's right to
receive Incentive Bonus on account of the year of his termination shall be
prorated to the date of such termination. In addition, the Option granted to
Executive pursuant to Section 8 hereof shall be deemed to have become fully
vested in him pursuant to and subject to the provisions of such Section.
9.6. Voluntary Termination of Employment upon Change in Control
(a) If during the Term a Change in Control of the Company, as defined
in Section 9.6(b) shall occur, and the Executive shall:
(i) voluntarily terminate his employment within one (1) year
following such Change in Control and such termination shall be as a
result of the Executive's good faith determination that as a result of
the Change in Control and a change in circumstances thereafter
significantly affecting his position, he can no longer adequately
exercise the authorities, powers, functions or duties attached to his
position as an executive officer of the Company, or
(ii) voluntarily terminate his employment within one (1) year
following such Change in Control, and such termination shall be as a
result of the Executive's good faith determination that he can no
longer perform his duties as an executive officer of the Company by
reason of a substantial diminution in his responsibilities, status,
perquisites or position; or
(iii) voluntarily terminate his employment within one (1) year
following such Change in Control, if the Company has breached any
material obligation to Executive contained in this Agreement or has
otherwise failed to assume all obligations of the Company under this
Agreement; or
(iv) have his employment terminated by the Company for reasons
other than those specified in Section 9.3(b) within one (1) year
following such Change in Control;
then in any of the above four cases, and notwithstanding any other provision of
this Agreement, the Executive shall have the right to immediately terminate this
Agreement by written notice to the Board of Directors and a nonforfeitable right
to receive, payable in a lump sum within ten (10) business days following such
written notice, an amount equal to eighteen (18) months of Base Salary at the
then current rate, reimbursement of any previously unreimbursed business
expenses, plus an amount equal to the greater of (x) the full Incentive Bonus
for which Executive could receive under any bonus criteria established by the
Board of Directors for the Employment Year in which termination occurs
(regardless of whether such criteria are actually satisfied), or (y) the
Incentive Bonus actually paid to Executive during the previous Employment Year.
In addition, on the date of such written notice (which shall be the Termination
Date) the Option granted to Executive
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pursuant to Section 8 hereof shall be deemed to have become fully vested in him
pursuant to and subject to the provisions of such Section, and the Company shall
continue for a period of eighteen (18) months Executive's coverage under
medical, hospitalization, and health benefit plans as applicable on the
Termination Date. Notwithstanding the foregoing, payments made to Executive
pursuant to this Section, together with any other payments to the Executive by
the Company under this Agreement or otherwise, shall not exceed the maximum
amount allowable as a deduction to the Company for federal income tax purposes,
as may be determined in the reasonable discretion of the Company, under any
applicable provision of law or regulations.
(b) For purposes of this Agreement, a "Change in Control" shall mean:
(i) the obtaining by any party of fifty percent (50%) or more
of the voting shares of the Company pursuant to a "tender offer" for such shares
as provided under Rule 14d-2 promulgated under the Securities Exchange Act of
1934, as amended, or any subsequent comparable federal rule or regulation
governing tender offers; or
(ii) individuals who were members of the Company's Board of
Directors immediately prior to any particular meeting of the Company's
shareholders which involves a contest for the election of directors fail to
constitute a majority of the members of the Company's Board of Directors
following such election; or
(iii) the Company executing an agreement concerning the sale
of substantially all of its assets to a purchaser which is not a subsidiary; or
(iv) the Company's adoption of a plan of dissolution or
liquidation; or
(v) the Company's executing an agreement concerning a merger
or consolidation involving the Company in which the Company is not the surviving
corporation or if, immediately following such merger or consolidation, less than
fifty percent (50%) of the surviving corporation's outstanding voting stock is
held by persons who are share holders of the Company immediately prior to such
merger or consolidation.
9.7. Voluntary Termination of Employment. If Executive voluntarily
terminates his employment (other than as authorized under Sections 9.5 or 9.6),
then he shall be deemed to have been terminated by the Company for cause and
shall receive no further compensation or benefits except as provided in Section
9.3(c).
9.8. No Duty to Mitigate; COBRA. After any Termination Date under this
Section 9, Executive shall have no obligation to seek other employment, but
shall have the right to be otherwise employed, and any compensation of any type
whatsoever received by the Executive in connection with such employment shall
not be offset by the Company against any of the obligations of the Company under
this Agreement. Any Termination Date under this Section 9 shall be deemed to be
the date of termination of Executive's employment for purposes of the
Comprehensive Budget
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Reconciliation Act ("COBRA"), and the continuation of any compensation or
benefits after the Termination Date pursuant to any provision of this Section 9
shall not have the effect of delaying the commencement of the COBRA coverage
period beyond the Termination Date.
9.9. Stock Redemption Following Death. In the event of termination of
Executive's employment under Section 9.1, the Company shall collect the proceeds
of the life insurance policy referenced in this Section 9.9, and on the earlier
of fifteen (15) days of the date of such collection or ninety (90) days
following the death of Executive, the Company shall purchase, and the legal
representative of the estate of the Executive shall sell to the Company, at a
price per share equal to the closing price per share of the Common Shares on
Executive's date of death which is quoted by the principal exchange on which the
Common Shares are traded on such date, or the reported closing bid price per
share in the over the counter market on such date if the Common Shares are not
traded on any exchange (the "Market Price"), such number of Common Shares of the
Company as shall be obtained by dividing Two Million Dollars ($2,000,000) by the
Market Price. If the estate of the Executive holds fewer than the number of
Common Shares resulting from such calculation, the Company will purchase, and
the legal representative of the estate shall sell, such number of Common Shares
as are held by the estate. The Company shall purchase, and shall be the owner
and beneficiary of, an insurance policy on the life of Executive in an amount
sufficient to fund its obligations under this Section 9.9, and shall maintain
and pay the premiums on such policy during the term of this Agreement.
Section 10. Representations and Warranties of Executive.
Executive hereby represents and warrants, the same being part of the
essence of this Agreement that, as of the Commencement Date, he is not a party
to any agreement, contract or understanding, and that no facts or circumstances
exist which would in any way restrict or prohibit him from undertaking or
performing any of his obligations under this Agreement. The foregoing
representations and warranties shall remain in effect throughout the Term.
Section 11. Confidential Information and Proprietary Interests.
11.1. Acknowledgement of Confidentiality. Executive understands and
acknowledges that he may obtain Confidential Information in the performance of
his services. Executive further acknowledges that the services to be rendered by
him are of a special, unique and extraordinary character and that, in connection
with such services, he will have access to Confidential Information vital to the
business of the Company and its Affiliates. Accordingly, Executive agrees that
he shall not, either during the Term or at any time thereafter, use or disclose
to any person any such Confidential Information except as such use or disclosure
is reasonably required in the proper performance of his services hereunder.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or in consequence of a breach by Executive of his
obligations under this Section 11).
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In the event Executive is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects,
permit the Company an adequate opportunity, at its own expense, to contest such
law or court order.
11.2. Delivery of Material. Executive shall promptly, and without
charge, deliver to the Company on the termination of his employment hereunder,
or at any other time the Company may so request, all memoranda, notes, records,
reports, manuals, computer disks, videotapes, drawings, blueprints and other
documents (and all copies thereof) relating to the business of the Company and
Affiliates, and all property associated therewith, which he may then possess or
have under his control.
11.3. Ideas, Programs, Etc. If, during the Term, Executive invents or
develops any ideas, software programs, products, devices, business systems or
procedures, marketing methods or materials, inventions, trademarks, works of
authorship or trade secrets relating to or useful in connection with the
Business of the Company, the same are and shall remain the property of the
Company, and he will promptly deliver all copies of the same to the Company,
assign his interest therein to the Company and execute such documents as
Company's counsel may request to convey title thereto to the Company including,
but not limited to applications for or assignments of patents, copyrights, or
trade or service marks, all without any further compensation.
Section 12. Non-Competition Provisions.
Executive agrees that he will not, during the Restricted Period,
compete directly or indirectly with the business of the Company or any
Affiliate. The phrase "compete directly or indirectly with the business of the
Company or any Affiliate" shall be deemed to include, without limiting the
generality thereof, (a) engaging or having a material interest, directly or
indirectly, as owner, employee, officer, director, partner, sales
representative, stockholder, capital investor, adviser or consultant, either
alone or in association with other, in the operation of any aspect of any type
of business or enterprise competitive with the business or operation of the
Company or any Affiliate; (b) soliciting any person employed by the Company or
any Affiliate to leave such employment; (3) soliciting any person employed by
the Company or any Affiliate to become an employee of any other Person; or (4)
soliciting the business of any current or prospective customer of the Company or
any Affiliate for the benefit of any Person (other than the Company or such
Affiliate) for products or services competitive with or similar to products and
services as are at the time of such solicitation provided by the Company or any
Affiliate. For purposes of this Section 12, the legal or beneficial ownership of
equity securities representing five (5%) percent or less of the voting power of
any Person shall not be deemed to be a material direct or indirect ownership or
investment interest in such Person.
Section 13. Indemnification of Executive. The Company shall indemnify
Executive against any loss or expense arising out of acts or omissions of
Executive as an officer, director or employee
12
<PAGE> 13
of the Company or any Affiliate (except to the extent such acts or omissions
violate Executive's obligations under this Agreement) to the full extent
permitted by the Ohio General Corporation Law and shall include Executive as a
named insured or covered person on any policies of director and officer
liability, product liability, errors and omissions or other liability insurance
maintained by the Company.
Section 14. Disputes and Remedies.
14.1. Waiver of Jury Trial. EXECUTIVE AND THE COMPANY HEREBY WAIVE THE
RIGHT TO A TRIAL BY JURY IN THE EVENT OF ANY DISPUTE WHICH ARISES UNDER THIS
AGREEMENT.
14.2. Injunctive Relief. If Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 11 or 12 of this
Agreement, the Company shall have the following rights and remedies (each of
which shall be independent of the other, and shall be severally enforceable, and
all of which shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company at law or in equity):
(i) the right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity
jurisdiction, it being acknowledged by Executive that any such breach
or threatened breach will or may cause irreparable injury to the
Company and that money damages will or may not provide an adequate
remedy to the Company and Parent; and
(ii) the right and remedy to require Executive to account for
and pay over to the Company or Parent all compensation, profits,
monies, increments, things of value or other benefits, derived or
received by Executive as the result of any acts or transactions
constituting a breach of any of the provisions of Sections 11 or 12 of
this Agreement, and Executive hereby agrees to account for and pay over
all such compensation, profits, monies, increments, things of value or
other benefits to the Company
Executive specifically agrees not to object to any application made by
the Company to any court having equity jurisdiction, seeking an injunction
restraining him from committing, threatening or continuing any violation of
Sections 11 or 12 of this Agreement.
14.3. Partial Enforceability. If any provision contained in Section 11
or 12, or any part thereof, is construed to be invalid or unenforceable, the
same shall not affect the remainder of Executive's agreements, covenants and
undertakings, or the other restrictions which he has accepted, in Sections 11 or
12, and the remaining such agreements, covenants, undertakings and restrictions
shall be given the fullest possible effect, without regard to the invalid parts.
14.4. Adjustment of Restrictions. Despite the prior provisions of this
Section 13, if any covenant or agreement contained in Section 12 or 13, or any
part thereof, is held by any court of
13
<PAGE> 14
competent jurisdiction to be unenforceable because of the duration of such
provision or the geographic area covered thereby, the court making such
determination shall have the power to reduce the duration or geographic area of
such provision and, in its reduced form, such provision shall be enforceable.
14.5. Attorneys Fees and Expenses. In the event that any action, suit
or other proceeding at law or in equity is brought by either party to enforce
the provisions of this Agreement, or to obtain money damages for the breach
thereof, then the party which substantially prevails in such action (whether by
judgment or settlement) shall be entitled to recover from the other party all
reasonable expenses of such litigation (including any appeals), including, but
not limited to, reasonable attorneys' fees and disbursements.
Section 15. Survival.
The provisions of Sections 11, 12, 13, 14 and this Section 15 shall
survive termination or expiration of this Agreement and remain enforceable
according to their terms.
Section 16. Severability.
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
Section 17. Notices.
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, which notices shall be addressed as
follows:
If to the Company:
NetMed, Inc.
425 Metro Place North, Suite 140
Dublin, Ohio 43017
Attention: Secretary
with a copy to:
William J. Kelly, Jr.
Porter, Wright, Morris & Arthur
41 South High Street, Suite 2900
Columbus, Ohio 43215
14
<PAGE> 15
If to Executive:
Mr. David J. Richards
7964 Holyrood Court
Dublin, Ohio 43017
By notice as provided in this Section either party may from time to
time change its address or the name of any person to whose attention notice is
to be given, or designate an additional person to whom notice is to be given
under this Section.
Section 18. Assignment and Successors.
Neither this Agreement nor any of his rights or duties hereunder may be
assigned or delegated by Executive. This Agreement is not assignable by the
Company except to any successor in interest which acquires all or substantially
all of the business of the Company as it is conducted at the time of such
assignment. Any corporation into or with which the Company is merged or
consolidated or which acquires all or substantially all of the business of
Company shall be deemed to be a successor of the Company for purposes hereof.
This Agreement shall be binding upon and, except as aforesaid, shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
Section 19. Entire Agreement and Waiver.
19.1. Integration. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect. This
Agreement may not be amended, supplemented or rescinded except by instrument in
writing signed by the parties hereto. Neither this Agreement nor any of the
rights of any of the parties hereunder may be terminated except as provided
herein.
19.2. No Waiver. No waiver or modification of any of the provisions of
this Agreement shall be valid unless in writing and signed by or on behalf of
the party granting such waiver or modification. No waiver by any party of any
breach or default hereunder shall be deemed a waiver of any repetition of such
breach or default or shall be deemed a waiver of any other breach or default,
nor shall it in any way affect any of the other terms or conditions of this
Agreement or the enforceability thereof. No failure of the Company to exercise
any power given it hereunder or to insist upon strict compliance by Executive
with any obligation hereunder, and no custom or practice at variance with the
terms hereof, shall constitute a waiver of the right of the Company to demand
strict compliance with the terms hereof.
15
<PAGE> 16
Executive shall not have the right to sign any waiver or modification
of any provisions of this Agreement on behalf of the Company, nor shall any
action taken by Executive, as the President of the Company, or otherwise, reduce
his obligations under this Agreement.
Section 20. Governing Law.
This Agreement shall be governed by and construed, and the rights and
obligations of the parties hereto enforced, in accordance with the laws of the
State of Ohio.
Section 21. Headings.
The Section and Subsection headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, which shall be deemed to be the Commencement Date.
COMPANY
NetMed, Inc.
By: Kenneth B. Leachman
------------------------------
Its: Vice President of Finance
-----------------------------
EXECUTIVE
/s/ DAVID J. RICHARDS
----------------------------------
David J. Richards
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary financial information extraced from NetMed, Inc.
Form 10-Q for the three months ended June 30, 1997 and is qualified in its'
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 213,948
<SECURITIES> 3,165,138
<RECEIVABLES> 319,526
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,719,378
<PP&E> 67,219
<DEPRECIATION> 39,599
<TOTAL-ASSETS> 4,403,611
<CURRENT-LIABILITIES> 596,125
<BONDS> 0
0
0
<COMMON> 4,012,884
<OTHER-SE> 552,905
<TOTAL-LIABILITY-AND-EQUITY> 4,403,611
<SALES> 214,255
<TOTAL-REVENUES> 214,255
<CGS> 0
<TOTAL-COSTS> 885,237
<OTHER-EXPENSES> (434,444)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (236,538)
<INCOME-TAX> 202,419
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (438,957)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
